How transparent are most companies with compensation?
What should I be sharing with my employees?
At Pave, we believe transparency is your best retention policy.
But everyday, we get companies asking us what they should or should not share with their employees when it comes to compensation.
Can I share the company’s latest preferred price?
Should I let them know what the salary band is for their role?
What about the merit matrix?
So, we’ve broken everything you could share into three categories:
- Things that every company shares
- Things that most companies share
- And things that only the most transparent companies share
What every company shares with employees:
These ones are pretty obvious. If you aren’t sharing these, time to reconsider what you’re doing.
- Base salary: One would certainly hope employees know this!
- Variable (if relevant): Same deal.
- Number of shares: This is a critical component of every comp package at a startup. However, without other details around equity it’s mostly useless.
- Exercise price: Often this is shared in the offer letter, but is always in the option grant agreement that an employee receives post-hire.
- Vesting Schedule: Similar to exercise price, not always shared with candidates but always described in the option agreement for employees.
- High-level benefits information: Every company is happy to tell employees they have free lunch, healthcare, 401k, etc. They don’t always go further than that.
What most companies are sharing with their employees:
This list is a bit more debatable, but most companies that we work with choose to share these with employees.
- Latest preferred price: Some companies hesitate before sharing this number because there’s no guarantee that employees would be able to get that price for their shares in a liquidity event. However, in a privately held company, this is as close as you can get to “market price”, and without it, it can be difficult to assess the value of your option grant.
- Preferred price for every round: This context is useful for employees to understand the historical growth and trajectory of the company.
- Current post-money valuation: Similar to preferred price, some companies are reticent about sharing the post-money valuation. However, this input is incredibly helpful to give employees a sense of the potential upside at the company. E.g. a $30M company has a lot more room to grow than a $3B company.
- Detailed benefits cost information: Many companies are thrilled to tell their employees how much they pay for health care, food, commuter stipends, etc. - as it tends to be much more than employees would have guessed.
What only the most transparent companies share with employees:
These things are shared only rarely - so if your company shares these things with the employees, you can rest assured that they are in the top tier of transparent employers.
- Fully diluted shares outstanding: Technically speaking, if you have both the preferred price and the valuation, you can calculate FDSO (Post-money = Pref. Price x FDSO). Sharing this would also allow employees to calculate their ownership % of the company (Shares granted / FDSO).
- Position in salary band*: For companies with salary ranges, this means telling the employee that they are at the mid-point or maximum end of the band. If you don’t have fully built-out ranges for each role, you could also share the market reference data. E.g. letting the employee know their salary (or equity) is in the 75th percentile for their role.
- Historical bonus/variable attainment: Rarely do companies share the average attainment of variable with employees, but it is a relevant input for employees. If the variable is a large part of the package, but historically employees haven’t been able to attain it - is it really that valuable?
- Capitalization details: To many companies, this is sensitive information that’s too confidential to share. However, the capitalization details could have a massive impact on the value that employees get from a liquidity event if preferred shares have multipliers or participating preferred terms associated with them.
- % ownership of the fully diluted cap table: This can sometimes be calculated from other information, but many employees like to know this in order to benchmark their package against what they believe they should be getting. However, that’s exactly why some prefer not to share - because it can create difficult conversations resetting employees’ expectations.
- Full compensation framework, including levels and tracks: Rarely do companies share the entire compensation framework with their employees. However, this is helpful to understand your progression through the org and many large tech companies have famously transparent frameworks (Amazon, Facebook, Google - think levels.fyi).
- Average compa ratio for role: Many employers probably don’t have an easy way to calculate this themselves and thus don’t share with employees. However, it would be useful information to help employees understand if they were in the top tier of their peers or not.
As you can see, there’s quite a lot that most companies are not sharing with their employees today.
Ultimately, what you share with your employees is up to you. In fact, there’s very little that you are legally required to share.
However, your choices will have an impact on how employees feel about the company and the level of trust they place in it’s leadership.
Especially when it comes to something as important to your employees as their compensation, why be opaque?
*Due to a new California law, employers are now required to share the compensation band with candidates if they ask for it… but why make them ask?