Module Description:
Ubiquity Extended Team member bethanye Blount discusses setting your startup's compensation philosophy, compensation for remote vs. in-person teammates, the concept of "leveling" and where to find compensation figures.
Full Transcript:
Welcome, everyone, to our Ubiquity University session on Employee Compensation, The Basics. Ubiquity Ventures is a seed stage venture capital firm investing in software beyond the screen. That means companies that are moving software off of the computer screen into the real physical world, solving real world problems with smart hardware and machine learning. In today's session, which is part of a multi-part series, we'll be talking with Bethanye Blount about employee compensation. Bethanye was co-founder of Compaas, which was a modern compensation startup, and almost 15 years ago I was on her board at a very different company. So she's had a long serial entrepreneur career along the way and today she's gonna dive into some philosophy and some ideas behind compensation. In a future series, we'll get more into some of the tactics and details. So Bethanye, welcome to the program. Let me ask you to start with any additional elements of your background we should touch on, and we'll weave that into how you think about compensation philosophy.
So I started, thanks, Sunil, I started, as you know, founded a company way back and sold that company to Facebook in 2011. So after having worked in companies that were a little more, a little less structured, I would say, than Facebook, in a lot of ways, but in particular, some of their HR stuff. For example, I spent several years at Linden Lab, which are the creators of Second Life. They had a very unusual way that they approached things like management and compensation. When I went to Facebook, it was very different. It was all very organized and very methodical. And I worked with these really professional people who were, especially back leading up towards the IPO, it was just really buttoned down, and it was my first time working with these very professional, thoughtful, just really great HR staff and different kinds of elements of that. So when I left Facebook, I took a very brief detour through Reddit and then founded, I'm one of the founders of Project Include, which is a really great, I know I'm biased on this, but a really great nonprofit that we started many years ago now in 2015 to help early stage companies, very early stage companies make better decisions around getting started with intersectional diversity and inclusion and equity inside the organization. We have a handbook actually for Project Include at projectinclude.org that helps with companies at any size, if this is something that's on your list of things you're thinking about while you're thinking about compensation. But then when we founded Compaas about seven years ago, my co-founder and I wanted to take all of the experiences we had had from starting companies and knowing how much we didn't know, 'cause you didn't know anything, and the experiences we'd had in larger companies where they sort of had everything buttoned up, and figure out how we could bring some of the, answer some of the questions and make it so that it's just a lot more obvious to make the right decisions that you end up having to live with forever. And that's how we ended up building Compaas. So as an engineer, I didn't know very much about what it meant to do this. And I think the first thing I would wanna say to everybody is that compensation is not a math problem. That is a thing that people think all the time, especially if you come from a technical or engineering background. Certainly, Lisa and I thought that when we started Compaas. We were just like, "Oh yeah, this is a math problem. We like math." Compensation is not a math problem, it's an art problem that uses math. And the art is figuring out how to use this keystone element of how you reward your employees in addition to other things like how you support them through management and things. How do you do that to help be one of the major building blocks of your company? It's foundational, it's where the rubber hits the road. You either pay people or you don't, you can't fake it. And it's something where there's a lot of legislation and things that have changed over the last several years as well, especially in the U.S. and Canada. So it's a complicated problem and certainly one that we loved for a long time.
Perfect, well, let's talk about one element of compensation philosophy that's relevant in post-COVID 2023, remote versus distributed. How does that weave in?
What we have found at Compass is that most small companies really did start with the idea that you wanted to get people wherever you could and you wanted to have people that worked remotely. And we certainly did that as well, when everybody went home. Now, if you look at how, leaving aside the big return to work thing that's still, obviously, I think, a bit up in the air as of this glorious Q3 2023 world we're in, I think that the thing that's most interesting about that is gonna be making decisions about how you feel about working remote and if you're going to, and how you wanna deal with pay when it comes to working remote. So before you do anything about how you're gonna decide how to pay people, you have to think about your compensation philosophy. And this is angsty and this is like looking inside your heart, and this is not math. So leave the math aside for a few minutes and just think about who are we, what are the things we value? Some companies really value stock, and what I mean by that is they see stock as this thing that's the representation of somebody's commitment to the company. And so they lean heavy into stock and they're like, "Everyone should take less cash because they're gonna take a lot of stock." And that's one way you can do it. Another way you can do it is you can think we really wanna pay people pay as fairly as we can. We wanna think about it that way and we assume that the stock will come up or it won't. That's another way. How do you feel from your experiences and the kinds of people you wanna hire about how you wanna pay people, just fundamentally. Now, one of these layers, like you said, Sunil, is about remote and distributed. Are you going to pay everybody the same amount no matter where they live, shich San Francisco people, especially if you're from San Francisco, love, or are you going to do what almost everybody actually does, even if they say they don't, and pay people differently depending on where they live? If you're gonna pay people differently based on where they live, just to give a quick thing on this, there's usually people that divvy up the United States into a couple of buckets. Which they'll call zones usually or areas. And that's gonna be zone one, which is gonna be San Francisco and New York. Then you have zone two, which is Boston, Seattle, Austin, sometimes Atlanta, depending on what's going on. Zone three is everywhere else that's a city. Zone four is everywhere else that's out in the country, basically. That's the sort of general way they do it. And then they'll do some rough math. Say, if 100% of a salary is gonna be San Francisco, then we'll say that, I'm making these numbers up 'cause they do shift a little, just to be clear, but you might say, okay, 90% is gonna be zone two or 88% is gonna be zone two and 86% or 82% is gonna be zone three. We can definitely talk about some tips later on how to guess kinda what those zones should be. We can talk about how you wanna revisit those from time to time. But if you want to pay people differently, the trick is to be really thoughtful about how you wanna do it and consistent in how you apply it. And that consistency is gonna be the thing that's most important when you do comp no matter what.
Perfect. So there was another important mindset tool you and I talked about a little bit, which is this idea of leveling and using that to provide accountability to yourself as a founder as opposed to chasing anyone you could at whatever cost or whatever timeframe. So can you please say some more about leveling?
I understand that small companies think about leveling, and when I say leveling, I mean, okay, do I have an engineering 1, 2, 3, 4, something like that? And you think, oh, that's a big company thing, that's a Google thing, that's a whoever thing. And certainly having those things be published and public and stuff like that, it can be like that, but at a minimum, even when you are too small to have to say publish ranges on your job listings and things like that, which is a very common thing to have to do now in a lot of states, you still owe yourself as a founder the accountability of knowing that the person that you hired is meeting the expectations that you had for them. And I really understand that when you're trying to hire someone and you are in love with this candidate, you're like, "Oh my god, I love this guy, he's so great. I love him, I want to hire him. I want him to come be with, he's gonna take us to to 100x, he's our guy," that you will do anything it takes to get him. But what we very rarely then do as founders and leaders is hold ourselves accountable to go back then three or four or six months later and say, "Is this dude actually doing this or not?" And one of the tricks you have to help yourself with this is the idea of leveling even if you don't publish those levels internally. What that means in practice is that you have a basic small leveling grid that you can use to help you get an idea of what you think somebody should be able to accomplish at various levels. And when you hire someone, you make note to self, I think this person is a senior engineer, which means they should be able to accomplish these things. And then three or six months later, if they're not accomplishing that, then you know, you know that that's not how that worked out. So one, that helps you learn to fall less in love. So you have to teach yourself a little bit of discipline around that. But the other thing that it does for you is it makes it so that you can, what's the best way to put this? It makes it so that you can have good discussions with them when they come to you and ask you for raises, which they will eventually do. It makes it so that you can ensure that if you really should let that person go because you had very high expectations for them and in practice they haven't actually delivered on those expectations, that ends up being something that's very useful to be able to have for you. It's just the thing that makes it so that you are holding yourself accountable and so you can have regular, you need to put this on your calendar, have a regular conversation, ideally with your co-founder, if you have one to say, "Okay, let's look at all of our hires for the last year. Are they actually doing what we thought they were gonna do? What are we gonna do to help level them up? Are we just not giving them the opportunities they should have, what's going on here?"
Okay, that is very helpful. Let's move on to the basics of cash management when you talk about employee compensation.
The basics of cash management are similar but not identical to the basics of stock management. So what you wanna do is, of course, when you're working with your, you're planning for your company, there's a few things that you wanna do, you wanna think about. In order to accomplish our goals, who do we need to hire, how many people do we need to hire? And then generally, how much do we think those people are gonna cost? Remember when you are doing that cost analysis of how much you think an employee's gonna cost, they don't just cost their salary. You are almost definitely probably providing benefits for them. You're definitely having to pay their employee taxes. You should account for, I used to do about 25 to 30% more, especially as health insurance costs have gone up, so if you have somebody that you think you're gonna end up paying them 150, I would put their total loaded cost at 200. I do, by the way, tend to go high on how much I think things are gonna cost. Some people are the opposite of that. So that's my full disclosure on that. So remember that when you're figuring out about how much you're looking at for the loaded cost on somebody. Classic mistake, by the way, don't make that one. The next thing that you wanna do is you wanna think, okay, if we're gonna hire three engineers and a couple of really awesome customer success people and a couple of salespeople, think about, if you're gonna do tiers on how you're gonna hire people, kind of like if you're gonna do remote tiers, I usually do my costing based off of the most expensive region and everything else is sort of like a nice bonus if it comes through that we have a little bit of room to spare. When you are running a company, everything is gonna be so much more expensive than you planned for, so give yourself some breathing room when you can. Don't forget to account for the other costs that often people forget as well, which is going to be things like software licenses, hardware acquisition. In many states, if you are having everybody work remote, you need to pay for their wifi and maybe their cell phone. That's usually a benefit that they have to do expensing for. Just don't forget that stuff when you're doing the loaded cost on someone, especially the startup cost of someone. If you're using a recruiter, don't forget to pay for recruiter costs, because for certain roles, recruiters are really useful, maybe for all roles, depending on what you do. And so you wanna make sure you account for that as well. Okay, so following onto that. In the back of your mind, it is probably useful if you have some basic levels to kind of know the basic ranges you think you'd be willing to pay or you think are reasonable for what you see in the market for what you wanna go for for each of these kinds of roles. So when you're thinking, "I wanna hire a couple of engineers, a couple customer success people," whatever, that should be built into your annual financial plan that you've built and you should be able to discuss that with the board and get a basic sign off that they know that this is essentially what you're planning to do over the next year. Now, that can change, and you wanna be clear with them as that changes, but definitely getting an idea. In order to accomplish these things, we think we need these people and we think it's gonna cost X amount of money. Then you wanna watch those costs over time. Remember, when you are doing, this is the opposite where I don't worry about everybody, remember that if you think you're gonna pay four engineers $250,000 a year, loaded costs on each one, you aren't gonna hire them all the same day. So if you're not hiring one until later, you can build that into your model so that you wouldn't expect that that cost's gonna be for the whole year. Also remember that if you're going out and you're looking at this stage, earlier stage companies, we're like, we know who we kind of want, but sometimes you meet someone and they can be so much more. So give yourself the flexibility to be able to kind of go up a level too if you find that that's the right match for your company. So if you think you're gonna hire another mid-level engineer but you find somebody who's amazing, try to give yourself a little bit of buffer to be able to go up a level. And that's not something where you necessarily need to go back to the board unless there's a big equity shift that goes with those changes. I would say from a basic financial perspective, think about it in a whole year, revisit it every quarter. Don't forget about the entire loaded cost. When you do your levels, which is another good reason to do them, they're a good financial exercise. Here's the other thing too, by the way, that nobody tells you, even in companies that say, "Oh we don't have levels, we don't have levels," they are lying. Finance has levels even if nobody else has them. So there's nothing gross or weird or sketchy or big company about you deciding that you're going to use some financial rigor in how you're going to build out your organization. Pro tip.
That's good, good stern advice. Especially, you and I were talking before this about making sure that we were tailoring this for a two-person or five-person or 10-person company. So it's interesting to hear, which those kind of companies are allergic to big company practices, and sometimes for good reason.
Yeah, if nothing else, you don't need to have all the big company practices, but remember that a lot of these things exist at our size when we're little to have as accountability exercises and as financial planning exercises. And that's still valuable. Plus, it also helps you think about when you're telling somebody, "Maybe you'll grow this way, maybe we can get you more money later." But that's another talk we can talk about later.
Perfect. So last topic for our session, which again, this is part of a broader series, which we'll get to more topics, how do we get started with employee compensation?
Right, so let's go for the questions that everyone's gonna wanna know ahead of time. How do I even find, how do I even, how do I even find out how much to pay somebody? So I have somebody, I've done the work, I wanna go to my board and I wanna tell them that we're gonna hire three engineers next year and how do I know how much to pay them? Let me give you some good and some don't dos. Don't fall for anybody who's gonna tell you that you need real-time compensation, because that is a garbage term, because it just means that prices keep going up, they never come down. Basically that's just AI fluff. Shocking, I know. Another thing is don't assume that you have to pay Facebook or Google or Microsoft or Amazon prices. You don't, you have other things that you offer. You're small, you have a vision, you aren't necessarily gonna, I hope, grind somebody into dust. They have upside that's potentially financial, but they also have upside of vision and they also have upside of being able to be able to make a thing and see themselves in it and believe in it. And that, your vision, the story you tell, has some financial stuff as well. So don't go for, "I have to somehow magically come up with half a million dollars a year." You don't, but you do need to make it worth somebody's while, and there's a number of different levers you can pull to do that. Don't fall for unlimited PTO. We can talk about that one some other time.
Oh, we definitely will, okay.
I'm not a big fan of unlimited PTO, and I understand why investors are. But I'm not, and we can talk about that separate. Not all investors, hashtag not all investors, I guess. And let's see, what else? Okay, a couple places you can go that have reliable, good information. Some VCs, some of your investors will have access to some comp data either out of their portfolio or through third parties. The historical one used to be this thing called Option Impact, they've been bought by Pave, and candidly, I don't know what's happening with that now. There's a real emphasis on realtime metrics there in that organization, and again, I'm not a big fan of real time metrics because I think that they're not organizationally consumable. That's the issue. I think it doesn't really help your company. Decide that you're gonna do this a couple times a year. Say, "You know what, we're gonna set our comp a couple times a year and we're not gonna do it every day." So if you know you wanna hire a bunch of people, lay out and sketch how much you think that's gonna be, and then do a little when you get there to kind of see if that still holds up. Look at places like Levels.fyi to get an idea what the big companies are paying. Again, that's not necessarily gonna be what you should pay, but it gives you sort of a general idea of what the trends are. You can see the deltas between different kinds of jobs and specialties. That's really useful sometimes. If they're paying a 25 to 30% premium for a certain kind of engineer, then you can go, "Okay, if we need one of those, maybe we should remember to account for that in our calculations. We'll have to sweeten the pot somehow for that kind of talent." You'll want to look at things honestly. I think that Angel is a pretty good place. But Angel stock listings tend to be too high. So cash is good, stock is inflated on Angel. Another pro tip. But the last thing I would say is, as a baby company, which we are, as a baby company, we've had this really hard time getting actual numbers from places on how much jobs paid. But there's been a lot of legislative changes throughout the U.S. that have made it so that companies are incentivized or required to post how much they're gonna pay for a job in the job listing. Now, a lot of companies have done, this may apply to you also, by the way, so prepare yourself to have to do ranges anyway, but a lot of companies do this in a really gross way, and they're like, "Oh, this job could pay anywhere from $30,000 to a million." Don't play that game. What you wanna do is you wanna look at a couple of different companies that do different things and say, "Okay, well, in this region it's this and this region it's that." It helps you see what regional differentials kind of look like. I saw a really good listing from, oh, I don't remember if it was Square or Asana recently, but it was company that shows, "We pay in this way and this is how this would pay in these different regions." I'm starting to see that kind of transparency with more of these sort of job listings. And I love that, I love seeing more of that. So look at different companies, look at different job listings that are out there, and then think about your special thing that you bring to the table, too. You are not competing in the same way, and there are some ways that they can't compete against you. Remember your strengths and leverage them.
Perfect, well, I think we have a lot more to cover. Today we went into philosophy, leveling cash management, how to get started. In a future session, we're gonna go a bit more into the tactics and cash levels and equity levels and negotiation and things like that. So stay tuned for the next module. Thank you again, Bethanye, appreciate it. And again, this has been our Ubiquity University module on Employee Compensation, The Basics. If you'd like to set up a meeting with Ubiquity, just visit pitch.ubiquity.vc