Market competitive pay (the Holy Grail)
With recent upheavals like inflation, remote work, the great resignation, and pay transparency — simultaneous compensation “shocks” — understanding and achieving market competitive pay can be a huge challenge. Jessica mentioned inflation as an example, and how it triggers questions from employees about merit increases. Despite this, there remains a safe disconnect between employee perceptions and financial realities. Comp folks also face the challenge of keeping up with various news cycles and data sources, making it especially important to lean on teamwork and market resources.
Communicating comp at fast-growing companies
Perhaps most vulnerable to the unpredictability of market shocks are comp teams at fast-growing companies. For these folks in evolving roles, Jessica recommended considering the employee experience, crafting empathetic communications, and delivering a thoughtful tone and language to the workforce. There is also an increasing demand for comp people to engage directly with employees and provide transparent explanations of comp decisions while maintaining an unbiased and consistent framework.
Intricacies of competitive pay
Competitive pay goes beyond numerical calculations. This calls for employers to communicate its definition, in all its intricacies, and for employees to properly believe in fair compensation compared to the market. Though complex, defining competitive pay requires companies to align their comp philosophies with talent strategies—and adapt to the market. Also crucial are education frameworks for employees to understand comp strategies.
So what exactly is competitive pay? It encompasses numerical calculations, practices, philosophy, and sufficient communication.
Balancing data sources
In today’s comp landscape, relying on a single source of data isn’t enough. Achieving competitive pay requires teams to consider different data streams, such as traditional survey data and real-time market data. On one hand, survey data is tried and true, providing high-volume market insights, while real-time data offers specificity and agility. Balancing these sources is more art than science, and there’s no one-size-fits-all formula for combining them.
Real-time market data, with its immediacy and relevance, can also boost executive engagement during comp discussions. This makes it a valuable tool for the comp team to build credibility and build market-responsive strategies.
The modern comp data stack
The “modern comp” data stack, as Charlie and Jessica explored, aims to incorporate multiple different data sources. Much like the energy grid’s baseload, traditional employee survey data offers stability, while real-time sources, like Compa, excel in addressing volatility or peak demand. Both serve unique and necessary purposes: surveys form the foundational, high-volume, and stable pay strategy; and real-time data magnifies current market dynamics. Only from both angles can comp teams adapt precisely in a constantly evolving market landscape.
No master key for equity comp
Regarding equity compensation, Jessica noted the absence of a single dominant market approach to things like stock price and vesting schedules. Rather than searching for a master key approach, companies opted to define equity within talent strategy and work closely with executive teams to align comp strategy with TA and retention goals. Some chose to treat equity more like short-term incentives, emphasizing quick vesting, dollar value and performance impact, while others stuck with traditional schedules, emphasizing predictability.
Traditional vs. shorter vesting
With shorter vesting schedules, stock vesting is front-loaded, meaning that employees could enjoy earlier value (depending on stock performance), but that management may be turned off by diminishing long-term commitments. Shareholders may benefit, too, but this is also contingent on employee retention.
While more companies are experimenting with shorter schedules, there remains value in traditional four-year schedules. Jessica emphasized that outcomes vary significantly based on factors like stock price stability and dollar value.
Two types of market peers
An organization’s relevant market can take a few different forms depending on its definition of competitive compensation. Two of note are: proxy peers, which include companies of similar size and growth stage; and talent peers, which are companies that employ desirable talent.
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