The Engineering Leadership Podcast · Episode 53

Compensation Mindset & Strategy

With Thanh Nguyen & Cyrus F

Aug 04, 2021
This ELC Hiring Summit special feature dives into compensation! We cover where you should start with your comp strategy, how to create consistency/transparency in your program, competing on comp/equity at the early stages, how to consider geography, and when you should bring in external support with Thanh Nguyen (Founder & CEO @ OpenComp) and Cyrus F. (GM/SVP @ Hatched Labs).
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SPEAKERS

Thanh Nguyen, Founder & CEO @ OpenComp

Thanh has spent the greater part of his decades-long career partnering with founders and investors on compensation and HR strategies. He is a leading expert in his field and has helped thousands of tech companies, including Airbnb, Figma, LiveNation, Lyft, Uber and many others.

As founder and CEO of OpenComp, Thanh brings to market a solution that combines his experience with powerful data and technology to help companies get compensation right and pay employees fairly.

Before joining Connery Consulting, Thanh led Rewards at Salesforce.com where he remained for 9 years, spanning domestic and international HR and Talent leadership roles.

Cyrus F, GM/SVP @ Hatched Labs

Cyrus claims to have dabbled in the software development space since the first bubble. He's the GM/SVP at Hatched Labs - a globally distributed group of crafters. He recently achieved the distinction of Assistant Cofounder to the Adventure Council®.

He doesn't have any venture capital, he owns no equity and he's not on social media. He looks up to his three and three quarters year old daughter who's already acquired four unicorns."

"And I think that drives people mad. It drives managers, mad. It drives candidates really mad around 'who do we believe?'

And that's why many people don't trust compensation, right? And it goes back to, " Hey, what is our philosophy and our strategy."

And really define this is the data we use. And this is how we think about establishment of our salary and equity bands. And we do it in a fair and a consistent way.

- Thanh Nguyen


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Show Notes

  • Where to start with your compensation strategy (1:30)
  • Consistency in compensation (5:00)
  • Transparency in compensation (7:13)
  • How to think about DE&I proactively in your compensation strategy (8:57)
  • How to compete on comp & equity in an early stage company (11:34)
  • How to consider geography with your hiring/compensation strategy (16:53)
  • When to bring in external support for compensation & hiring (20:13)
  • Once you’ve established a compensation strategy, now what? (22:15)
  • How to minimize differences in expectations on compensation for a role (24:07)
  • How should you decide to globalize or localize compensation? (26:28)

Transcript

Where to start with your compensation strategy

Thahn, Cyrus welcome. Both of you. Thank you both so much for joining us.

Thanh Nguyen: Thank you so much.

Cyrus F: Thank you, Patrick.

Patrick Gallagher: Take it !Away

Cyrus F: Thahn this is great. I'm really, really excited to have the opportunity here to speak with you. And you know, the topic of compensation and there's so many facets to it, right? And you obviously have a tremendous amount of experience here in the space, whether it's partnering with founders investors, companies, small and large.

And you know, myself having you know, sort of tried to understand this and ramp up on this over the last couple of years, you know, really want to understand there's the, all the different areas, right, when it comes to comp, whether it's salary, bonus, equity, benefits.

You know, kicking off, a new start up here you gotta have a plan. And I think understanding what it means to, to create a plan there you know, where do I begin? Like what, what's the, what's the right approach here? What are the first steps?

Thanh Nguyen: Yeah. I mean, look, I think one of the biggest things that I've always talked about over the years is outside of just, you know, paying more or less or how you're paying to market and what you're defining a market. It's, it's really a common theme of trying to be consistent.

And consistency is not the notion of paying everybody the same. But how do we get to a program where we can share that we have a consistent approach in how we bring people into the organization from a comp and equity perspective.

Now, you know, how, w how, how do we start thinking about that?

I mean, look, I think one of the biggest things is planning. I really try to focus on doubling down in that planning area. especially now with a distributed workforce is, you've got to understand who's being impacted really. Because it may not necessarily be your whole product and engineering team. Right?

You know, what roles where... and bringing in your partners, I mean, your talent partners, even your finance partners are going to be critical. And spending a lot of time developing that hiring plan out. Because when you do the work and establishing... whether it's cities or thinking about regional talent areas that you try to hire a lot of folks in... That's critical in establishing a consistent pay structure and a pay philosophy.

And you know, all those inputs from your, your recruitment team around talent and what type of talent is important as it relates to the overall development of, how you're going to mark your pay for those roles.

And I think the other thing is when we're talking about this, you know, you have to be very cognizant about when you're opening up the, the remote aspect. How's this going to impact your current team, right. Have you addressed how you're going to handle the normalization if somebody's moving from a high pay market to a lower pay market.

And, you know, we're seeing a lot of, of companies make those determinations where, you know, I think it's there are a few companies out there that can say, "Hey, we're just going to pay based on Bay Area rates and that's going to be our standard."

I mean, if you can do that, that's, you know, obviously it becomes... you're much more competitive from that dollar inequity perspective. But I think most companies are not going to be able to do that. So when you think about that, what is the strategy when you normalize somebody. And it could be, you know, time-based, and then maybe an offsetting a bonus when they're normalized.

So, you know, they can kind of phase into that. But those are all important aspects. And you've got to have those discussions well in advance before you kind of say, "Hey, we're, we're, we're going remote! Let's go figure out where the best talent is..."

Consistency in compensation

Cyrus F: Right. And with regards to that, I mean, you have the different geos, right is trying to understand the talent. And as part of that plan, how do you look for you know, consistency in terms of the pay, right? Consistency in terms of thinking about those bands.

Thanh Nguyen: Well, I mean, look, when, especially, you know, in the comp space, in the comp game, you know, you really got to get to the data. Whether it's data coming from recruitment, I think there are a lot of folks here that know about Radford, that know about probably our own data set. And option driver option impact.

Whatever you determined to use I think you've got to make sure that you're using the right dataset and that dataset obviously is heavily influenced on the stage and the industry and the geo.

And believe it or not, we still get a lot of of customers or prospects coming in and saying, "Hey, we were just using data based solely based on the, our recruiting efforts or just kind of this data set that somebody provided us. Or we're just looking at, self reported data."

And they're basing their strategies off of that.

Right. And I think that's a you know, that's a kind of a troublesome methodology, because you really want to be thoughtful about defining that. Because that definition leads you into really getting your pay philosophy established. And that's simply your market positioning strategy, and you know how you're going to set up your, your cash versus equity. bands. Right.

And those are really the groundworks for scale. Right. When you think about again if we're pushing this out to geos and having our baseline how do we get to establishing of those pay bands and equity ends for the varying levels of, of expertise for, our employees.

Cyrus F: Yeah. I mean, you mentioned that you go there and just being well-informed. I mean, that was something I know we spent quite a bit of time trying to figure out how do we make sure we've got the right data. And certainly we started out trying to be globally distributed and of course, you know, the events of the past year has kind of accelerated that, that adoption. And so really understanding what are the, you know, you mentioned Radford, right. I think is obviously when people are familiar with.

You know, serendipitously, we got introduced to Open Comp and it was just really helpful to have it not only as another dataset, but as a way to model and help with that planning.

Transparency in compensation

As part of the planning and now that you have sort of the dataset tell me a little bit, just in terms of the compensation, transparency, right? So if I'm gathering the data now, what is my responsibility to make sure that I'm transparent with it? And what does that exactly mean?

Sort of within the company.

Thanh Nguyen: Yeah, I, I, this is this happens all the time or it just comes up all the time.

Like transparency to some is, Hey, we should be showing, you know, base salaries and equities for everybody in the organization."

Now we don't believe that's probably the best best use of data. I think, you know when we talk about transparency, it's around the ability to transparently talk about your programs and your strategy, right? You have to be able to get to a point where you can communicate your overarching philosophy that ultimately links to the programs that you're going to deliver. Right?

Whether it's the merit cycle, the promo refresh performance cycles, they have to be thoughtfully communicated to your employees. And more importantly, those are the actual drivers that, support what's been planned from a finance and a burn and a dilution perspective.

Right? So when you think about going off and, building out a comp strategy and not having all that groundwork laid, laid forth. You really can't be transparent. Right. And transparency again is not, you know, " so-and-so makes XYZ and I make this" right.

And I think that's really troubling for, for companies that try to try to try to do that.

Cyrus F: Yeah. And again, going back, I mean, it, it, it requires, that you have an informed plan, right. And you have that data,

Thanh Nguyen: Yeah. Yeah.

Cyrus F: You know, homework, so to speak done ahead of time.

You know, in the, in a couple of talks back, I think it was Ragini you know, when they they're talking about DEI...

How to think about DE&I proactively in your compensation

How do you think about DEI so that it's not an afterthought, right? So where we're thinking about it as part of the strategy and not trying to apply that at the end where it's, you know, obviously not going to work.

Thanh Nguyen: Ragini hit it right on the head in terms of, it takes everybody to, to deal with this.

But I think from a, from uh, excuse me, from a data perspective you know, I think with certainly with compensation and kind of dealing with that, we need to try to get tactical and, and develop the analysis, right. That, that supports information for your hiring manager, for your recruiters and for the organization so they can actually measure you know, their own kind of composition and their own understanding of, of gender and pay.

And I think, you know, a lot of times when we're trying to do these programs and there's a questions on how to address it. I've asked our customers you know, have you gone through the process of analyzing your pay as it relates to gender and diversity.

And most of them haven't to be quite honest with you. So if, if you don't know what you're doing, it's hard to actually activate change, right? Because what you want to do is establish at least a baseline and show a road to change over time.

Now, you know, there's a lot that goes into that process. It's the attraction of, of those diverse candidates. But it's also more importantly, the retention of those candidates as they, stay and develop their career in the organization.

But, you know, from a, getting. analysis. That's a, that's a huge piece of evoking some, some major change in this area. Because, you know, we have customers that are using our DE&I tool and analysis at that recruiting level. Right? So they can inform and now bring knowledge to the recruitment team, as it relates to, you know, departments that they're recruiting for. and they start to understand the gaps.

And that's a open now conversation with hiring managers that is tangible and they've gotten numbers behind it. They know how they're paying within these categories. They know what the deltas are. now. it's their their opportunity to use that information, to act on it and use other programs and other providers to support you know that top of the funnel.

And then, everything else goes behind it in terms of making sure that those individuals get hired and are integrating or successful in their, their cycles with the company.

Cyrus F: Yeah. I mean, being objective that is so important so that you are basing it on something, right. That's concrete. And then being able to be consistent with that.

How to compete on compensation & equity in an early-stage company

You know, obviously in, in the technology space it's, it's highly competitive, right? And there's, there's certainly the mission of a company that, that obviously attracts talent.

But if you're getting, you know, if you're starting out and you're trying to get those first few hires in, right that first you know, engineer you know, do I overpay for an engineer? Right? Do I, do I increase in equity? Like, what is, what is it that I'm Running into right. And the challenge there if I take a misstep right out the gate?

Thanh Nguyen: Yeah, look... I wouldn't say it's necessarily miss-step. But I think it's acknowledgement that you're going to have to make some major trade-offs sometimes and most of the times, especially in the earlier stages.

I think, you know, even for us, we're growing our eng and product team. And one of the core things that we've tried to do before we really set off was to establish... again, going back to taking the data and building what was optimal for us from a finance perspective on how we wanted to use our capital and kind of our dilution goals as well. And really kind of map that out. Right.

So you're trying to somewhat solve for talent and what you're going to face and the demands on the talent aspect. And then you're going to try to solve for the bottoms up of your affordability. And at some point they're going to meet. Right.

And that's where the planning and developing ultimately your salary band that make sense for you. Whether it's in, you know, headquarters or the geos that you're going to hire into right. Once you start to do that, you you're, you're better informed on the trade offs you're willing to make for the different types of skills that you want to bring in at certain times.

So, I mean, the most important thing that we, we talk to our customers about is look, when you're making those heavy trade offs... Don't let those exceptions be the norm. Because there are a lot of folks that are moving really quickly. And they're using this kind of previous hire comp strategy. "Well, we hired somebody previously at this rate, so it's probably, you know, we could probably do it again."

And if you're not careful, you look back and you've got a really distributed, inconsistent pay strategy and equity. And then you've got to do a lot to clean up that. Right. But again, it goes back to what we've been talking about, getting solid planning, getting great data and starting to develop that philosophy and that structure.

Because we all know that there's going to be a lot of opportunities for your candidates to get paid more or take on more equity or more dollar value equity, et cetera. I think it's just really important to have, have knowledge and have a structure that says, look, most of your hiring is going to be comprised within the, the standard bands that you feel comfortable with as it relates to where you're at in your business.

How to consider geography with your hiring & compensation strategy

Cyrus F: So having, having a plan, consistency is key, but understanding there's going to be some agility there along the way. but that consistent mindset so that you don't end up with something that now you have bands and folks you know out of band all over the place.

so then add in for me, the, the geography, right? I mean the bay area obviously is competitive and then you have all these different markets in the U S and then now you expand it, you know, globally you know, how should we think about geography when, when it comes to hiring? Like what's, what's the focus that, that one should be mindful of?

Thanh Nguyen: Yeah, I think, look, I, again, we're facing this. We just recently hired somebody that they're in South Carolina. Right. And he actually told me that he's thinking about moving to New York. Right. So, Like, that's great. We, we think he's, he, he's fantastic. But you know, the implications of that now are we've got to set up a South Carolina entity and then New York entity probably post that and that New York entity could be three months away. So what are we going to do during these waiting periods?

So I think there are these other implications. And we talk about this kind of you and I previously talked about this, this notion of the the iceberg... you know, you've got comp that's really clear, and you've got an equity there. but you know, when you're planning this out at scale, you've got all these other operational needs.

And I, I think for us, even, you know, when you think about a company at our stage which is less than 25 folks, I'm still using kind of, contracting ops support, right from finance, et cetera. So. If you're, if we're going to move to 10 states pretty quickly, that's pretty onerous and there's a big cost to setting all of that up for our folks. And I think we've gotta be mindful about how that could potentially slow down and really kind of the engagement of that employee if we're not effectively set up to onboard those people in those regions. Right.

And that's where I think when you were thinking about doing or establishing these plans, having more regionalized hiring goals is pretty appropriate, I think. Because it allows you to develop these these structures that are really focused on kind of those labor markets.

And we don't want to have a situation where you're trying to price out every specific job, right. Or every specific job in each location. Because I think A. It might just not be that effective for you. The delta between pay might not be that, that much of a save quite frankly given all the operational load that you're going to take on to do that.

And we've seen companies do that and that, that has been their feedback. It's just like, Hey, we're, we're really gonna try to rethink this and reassociate and build those bands back to a model that we can really scale with. Right.

Cyrus F: Yeah. I mean, that's so true, right? I mean, one of the things we encountered is just trying to understand the various markets just the legalities of it, right. And so you kind of, initially you're thinking comp, you know, in terms of budget, "Hey, it might be a little bit more cost-effective to target these, these regions."

And then you know, there's an added sort of wrinkle of, "oh, you know, candidates have to give you know, advanced notice of two months."

And so now all of a sudden there's a timing aspect of it as well, that folks sometimes don't realize.

When to bring in external support for compensation & hiring

I guess briefly tell me, you know, in terms of a PEO, so a professional employer or how does that fat, you know, do, are there considerations there when thinking about comp and then bringing on somebody external to help as part of the hiring?

Thanh Nguyen: Yeah. it's actually pretty critical. I mean, when, if you've got, for example, a long period before you can actually hire somebody. And we all know this in the hiring process, the more that you have to interject time, there's more risk in losing that candidate, right? So you want them to get started with your organization as soon as possible, but if you're waiting on an entity to start to start somebody. Now you have to really think about having a you know, a PEO of sorts to hire that person on.

Some people would say, "Hey, let's just put them on as a contractor, a 10 99, but there are implications with that as it relates to the EDD and, and states flagging, whether you're a 10 99 and a W2 employee in the same year. And you get enough of those, you're going to have to go through an audit, right?

And when you think about those implications on those audits and not to get too much of a, a scare tack on this, but that takes a lot of time away from what you need to be doing and the resources that are redirected.

So again, the sooner you can get your head around where you're going to hire, you can start to plan for all the subsequent resources that ultimately lead to that individual or that employee coming on and onboarding and having a a very streamlined process with you.

Because we're facing the same thing right now. Right. And, you know, we have the luxuries of seeing a lot of this data and talking to a lot of folks. But yet we're, we're facing similar situations in terms of trying to move really quickly and trying to, hire folks in the same way most of our audiences is doing as well.

Cyrus F: Yeah, definitely.

Once you're established a compensation strategy, now what?

Coming, coming back to, you know, if, if you've now kind of established, right. You kind of have your geos established, you started to scale a team. You know, one of the things I'm encountering now is just thinking about the market gaps with the existing employee base. And so what are the, what are the areas there that I need to think about once you've kind of established, you've got your geos and then looking at, oh, you know what things are shifting, or as you've mentioned before, folks want to move, you know, South Carolina to New York.

Thanh Nguyen: Yeah. And I think, you know, there's, when you, when you're dealing with existing employees, you could, you could have some very compounding effects depending on how you're playing, paying them today, if there... if you feel like, they're currently performing really well or they're exceptional. And we feel like we're paying them well below market already. But then they determined that they're going to move, right to a different market that has either a higher or lower you know, pay structure... Then you've got to make those decisions fairly quickly. Right. And you've got to come up with those actions to shore up your employee issue there.

And you know, the best way to really solve for that is to do a competitive analysis on your, against your ranges or against your market data that you're using. So you can get ahead of what that cost would be. So you can apply those market adjustments where appropriate.

Now the reality is you might not be able to solve all your, gaps in pay, but you want to start thinking about the, the, the performers that you need to address as a priority. Right? So that's absolutely very critical as you open this up because your employees are going to look towards those locations. And, you know, maybe what to move there and you're going to have to address them fairly immediately.

Cyrus F: So making sure you constantly have that data, that feedback loop, that's always informing.

Let's see. I think Patrick. Yeah. Sounds like we got a couple of questions.

How to minimize differences in expectations on compensation for a role

Patrick Gallagher: So one question that came in from Michael. It seems that employers and employees often use different sources for compensation data.

Have you encountered issues with this misalignment of candidate expectations in the role? And what would you recommend to minimize the difference in expectations of, of compensation?

Thanh Nguyen: Yeah. I mean, that is one of the biggest problems, right? I think like simply when you, when you let's just bring up Radford, for example...

We've got a lot of early stage companies using Radford and there's like varying surveys, right? And we're trying to educate our customers on like, Hey, you know, the equity data that's being represented and their global survey is based on public company data. Now is that, you know, appropriate to use For a company that is a series A or series B?

So this is part of the discussion, and this is part of the training that needs to be had with talent and managers as well. because you've got to be able to catch this because there's just so much... there's just a lot of myths around data or, you know, just simply the notion of a basis points: "I've got this many in basis points for this company and I've got 20,000 shares here. I believe it's worth this. I don't believe it's worth this."

And I think that drives people mad. It drives managers, mad. It drives candidates really mad around "who do we believe?"

And that's why many people don't trust compensation, right? And it goes back to, "Hey, what is our philosophy and our strategy."

And really define this is the data we use. This is the, where this is coming from, this is our market positioning strategy. And this is how we think about establishment of our salary and equity bands. And we do it in a fair and a consistent way.

And if you're able to have those, I think you're able to cut off a lot of these preconceived or myths out there around, "this equity package is worth more than that."

right? Because we all know that, you know, it's all notional value anyways, until you get to a point where the company really does have legitimate enterprise value.

And you can actually see that head towards a, you know, an exit.

Patrick Gallagher: Thank you.

How should you decide to globalize or localize compensation?

And one final question, Thahn cause I think earlier today, we had a couple of folks share two sort of competing trends around the future of, of compensation. And it's our way it's, it's sort of this dilemma between localized versus like globally normalized compensation. And I don't think, I, I don't think the question is which one should people do, but rather I'm curious to learn, how would you help somebody arrive at a decision that's right for them to determine what their strategy is for localized compensation versus globally normalized. A certain framework or approach that you would help people come to the conclusion for like what's, what's the best approach for them?

Thanh Nguyen: Yeah. I really believe we, we somewhat talked about this...

There's the you know, operating and running the business, right. We all have to operate under and an operating plan, a budget of sorts. and then there's the talent, right? So that's going to ultimately come together as we talked about. And I think when you start to to to say, "Hey, we're going to have a global strategy. And that global strategy is going to be based on this set of data or market principles. And you're going to run that out in terms of your modeling. Which you should, because that's how you're going to build out your financial plan.

And, you're going to understand if there's going to be pressure on your abilities to do that. And based on what you are establishing there, the real test is from the recruitment aspect, is there going to be, the ability to hire? Or you're going to ultimately win or lose. And, and, and also, you know, from the current employee perspective, are you retaining your staff?

And that's just not from the standpoint of comp, but it has an end point input into that. Right. So, I think you have to do the workup on both ends and test that because that's going to ultimately help you back solve the, the right approach. because it's got to fit both model successfully, right.

To assume that you're gonna go off and set a plan and not have it within your financial envelope. I think, that probably wouldn't work out very well from a board and investor or shareholder perspective.

Patrick Gallagher: Thank you. Thahn Cyrus. Thank you both so much for your time. That's all the time that we have for questions. This has been an incredible exploration around compensation. I've learned so much that I was wasn't even on my radar to consider around building out our team. And so, thank you both so much for generating really important insights for our community.

Thanh Nguyen: Thank you.

Cyrus F: Thanks as well.

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