Compensation: Rethinking benchmarking and total rewards

Many companies are starting to shift to a more remote workforce. What this means is some companies are debating whether they’re going to move to a global design versus a local market design. Meaning do we pay a global consistent rate across the globe, regardless of location? Or, do we have a local market design and we pay based on the region or the country that someone is located within?

This is going to cause some challenges from a benchmarking perspective in order to really understand the difference in compensation from a global design versus a local market design.

What has shifted in compensation benchmarking? [0:39]
Over the last few months, I’ve been doing a ton of research in this space to understand what other companies might be doing and what companies will shift to a global design versus a local market design.

The TLDR here is that we will see some smaller companies moving to a global design, meaning they will pay the same rates across the globe and most likely benchmark this to US data. A majority of larger companies with higher growth goals will continue with the local market design, meaning they’ll pay and benchmark based off of the local country specific data.

How should companies approach compensation benchmarking? [1:17]
Start to expand the data that you look at. The best way to keep up in this moving and dynamic environment is to better understand the data. And you do that by looking at different data sets.

So perhaps if you’re based out of Canada, you might want to start to look at US data. This will give you a really good signal and pulse on how those global companies might be paying — and how your frameworks will stack up. If you’re in Canada, maybe you want to get a little bit more specific and granular at the data that you’re looking at. Most of us most likely are using a broad high-tech market data cut. I’d encourage you to create a list of your top 20 to 25 talent competitors, those companies that you most often compete for talent with, and start to look at the data cut specific to those competitors. This is going to give you a much more granular picture of how those companies are paying and how your frameworks will line up.

Step two is determining what approach makes most sense for you in your organization. Will you shift to a global design, or will you shift to a local design? You will need to make a call on this and a decision in order to appropriately benchmark your framework and ensure they’re aligned with your strategy. In reality, the global design will be more costly. And this might not make sense for all companies. The local market design will allow you to remain competitive in the locations that you want to compete within, although you still may fall behind if there you are competing against a company that is paying global rates.

The final tip of advice that I would give is tap into your internal data. We all know external market data is robust and accurate. But the reality is it’s expensive and it lags a little bit behind the market. In order for us to keep up with this fast-moving dynamic industry shifts that we’re seeing, we need to make sure that we’re looking at real-time data. The best opportunity for you to do this is to start to build your internal data pipelines. Your recruitment team talks to candidates all the time. Most likely these candidates are sharing their comp expectations or what they’re currently making today. This is real-time free data. Build a quick spreadsheet and allow your recruiters to fill that data in so that you can keep a more real-time accurate assessment of how your frameworks line up against the competitors and the candidates that you’re trying to attract. This is the best opportunity for us to understand and navigate this complex environment.

How can employers use total rewards to retain employees? [3:58]
Compensation most likely is a dis-satisfier versus a satisfier. Meaning, research shows us that when you give them a comp adjustment, they are of course thrilled but that only lasts for so long. What this means as organizations is we can’t just focus on the dollar value. We need to focus on the larger total rewards package and opportunities that we’re providing to our employees. And most importantly, we need to make sure our employees understand the package that we’re providing them.

One of the most important factors when building a total rewards package is ensuring we have strong communication — ensuring that the individuals responsible for communicating this total rewards package (your recruitment team, your managers) understand the total package. We can’t just focus on the monetary elements such as salary and equity. We need to also factor in the non-monetary elements: the development opportunities, the special events you might host at your company, the lunches, whatever special elements that you offer to your employee population.

You need to make sure that you are communicating when you’re trying to attract, but also, most importantly, that your internal employees understand what opportunities they have available to them, so that everyone has a consistent understanding of the total rewards package.

A great way to do this is by building a total reward statement. You can build a quick pie chart, a beautiful little dashboard in a Google spreadsheet, if that’s what works for you. You can also utilize tools such as Workday or there’s some really cool upcoming tools that companies such as Pave are creating in the market, really allowing you to help amplify the total rewards package to your candidates and to your employees.

How can companies rethink compensation to be more appealing? [5:53]
You see companies modifying the vesting schedule. As we know, most commonly in the market, most equity awards vest over three to four years. We are starting to see a recent trend where companies such as Lyft and Stripe are moving to a one-year vest schedule. Meaning, the full value vests within one year. So, instead of providing an oversized award that vests over three years, they’re giving annual grant opportunities that vest within one year and they’re giving it out annually. Pros and cons to each approach — and really important for you as a company to decide what approach or design will make sense for you.

The other trend that I’ve started to see has to do with the one-year clip. Some organizations are removing it for all grants, including on hire, annual and promotional, and some organizations are starting to remove this for annual impact and promotion only. A few things I’d ask for you to consider thinking about when making a decision around this is, “What are your goals of your equity design? What are you trying to achieve when you grant additional equity?” Is this to recognize impact? Is this for retention?

These are the key things you want to think about before making any design changes. And ultimately make a decision that makes sense for your organization. I would encourage you to not only understand the trends that are happening from a comp design perspective, but to look at your overall comp experience and figure out what tweaks you might be able to do from that perspective to really enhance your overall employee compensation satisfaction.

You need to focus on the overall compensation experience, not just the dollar volume. Two key pieces of advice I’d give from an experience perspective is ultimately research shows us that a manager’s ability to articulate compensation decision and the why behind that decision was a huge influence on satisfaction. What opportunities, what knowledge management, what resources are you currently arming your leaders with, to equip them to have really great conversations? Perhaps an opportunity for you to enhance some of these materials to better support them in navigating those conversations. The second one is the traditional annual comp cycle. This worked for us for many, many years. However, we’re starting to see some trends of organizations getting rid of the rigid one, one-size-fits all annual cycle and moving to a more flexible and dynamic approach. Allow leaders the ability to recognize employees real-time as it makes sense to them and their specific impact journey.

How can startups approach compensation realistically but competitively? [8:32]
That might not always be feasible to pay at the top end of the market. So what can you do if financially you can’t afford to pay there?

When I think of a startup, I instantly think of unlimited growth and development opportunities. What you need to think of as an organization is that total rewards package. But most importantly, what are the opportunities that your organization can provide to a candidate that perhaps larger organizations can’t? Maybe it’s the development opportunities.

When we think of employees wants and needs, not all employees are money-driven. Most employees, in fact, want to work for an organization whose mission they can get behind and they believe in. They want to work with an incredible team who have talented individuals that they can learn from.

So again, what opportunities do you have within your organization that you can make sure you’re selling to your candidates and to your internal employees that other large companies can’t provide?

How do companies approach compensation in multiple locations? [9:36]
Simple always scales better. When you’re looking at a regional or local market design, keep it simple.

Let’s use Canada as an example. When we look at market data across Canada, whether you sit in Vancouver, Calgary, Halifax, Ottawa, the market data all trends pretty consistent. The delta across all provinces and locations are less than 10%. So you need to ask yourself, does it really make sense to have multiple frameworks, when there’s not a huge delta between those frameworks?

Perhaps instead, it makes more sense to have one Canadian-wide framework. Basically, you can work in Vancouver or Halifax and you’re on one structure. This is going to allow your frameworks and your design to scale more quickly, while allowing more consistency in how individuals are paid across the globe.

I still encourage individuals to think of country-specific frameworks, but I would question how granular you want to get within that country. I would suggest that you avoid multiple frameworks within one country. Keep it simple: one framework per country. When you’re thinking of a range design and you’re at that point where it makes sense for you to stop market pricing and start to build ranges and structures, build them wide in the beginning. Again, this is going to allow you to scale quickly and allow you to hire the right candidate, while accommodating some variances in experience and locations.

So for example, maybe you have a Canadian-wide framework and the range spread is 0.75 to 1.25. This is a very wide range, but again allows you to account for the nuances and variances that you might see across the country. Of course as you grow and you scale, you might want to shrink those ranges a little bit. But start wide and shrink when you need to. Specifically, you might want to think considering a smaller range spread for lower entry job levels, maybe customer support roles, roles where you don’t expect a ton of variance. But with your developer roles, with your leadership roles, the wider ranges will play to your advantage.