How our early-stage startup is offering fair, equal, and transparent compensation
By: Jonathan Mortensen
Tags: Transparency, Negotiation, Tech, Startup, Equity

Data indicates that opaque, open-negotiation offers perpetuate systemic inequalities. Women are less likely to negotiate and more likely to undervalue their contributions. Black applicants negotiate at similar rates as white applicants, but they are less likely to receive the concessions they ask for due to biased assumptions. Secret compensation obscures these structural inequalities, which allows them to persist unchecked.

Wanting to treat employees fairly is the best reason to implement transparent salary practices, but it’s good for business, too. Inclusive workplaces are more productive, more innovative, and have higher retention rates. Employees are more motivated and collaborative when salaries are transparent. The data tells us that standardized compensation with transparency is a better way to do things.

How we set salaries

We standardize compensation to the role and level. Clear expectations keep roles and salary closely tied to employee’s contributions to the company and ensure that we’re not compensating people differently for reasons that are outside of those expectations.

We determine salary by mapping each role and level to our market data source for SF Bay Area and set a standard percentage of market value across the board. Total compensation is at or above market rates for our size of company. We need to be competitive to attract and retain strong talent.

We do not do cost of living adjustments (a controversial take, we know). The decision not to adjust comes down to valuing impact. The work costs what it costs. Expectations for performance don’t change based on geography. A senior engineer’s impact on the team should be the same whether they’re based in San Francisco or Toledo, so they should be compensated the same for their work. We also want our employees to be happy and we want to keep good people, which means giving them the flexibility to live where they want to without worrying about the effect on their paycheck.

How we determine equity

Equity distribution isn’t often, well, equitable. During open negotiations, equity can feel like an easy give since shares have potential versus actual value. But, equity negotiations, too, can perpetuate income inequality by biasing towards those who can wait for a payout, which consolidates wealth in the hands of people who already have it.

At bit.io, equity is determined solely by the role, level, employee number, and start month. In short, the amount is set to pay a multiple of the personal-net-worth opportunity cost of joining bit.io relative to a large tech company after accounting for risk taken. We calculate equity by start date, not by offer date, because earlier employees are taking on higher risks. At bit.io, their equity reflects that.

What do we mean by transparency

Secret compensation also can create interpersonal friction if — more likely when — employees share their salaries. It’s against the law in California to prohibit employees from talking about wages, and we wouldn’t want to. Hiring is a good-faith agreement, and negotiation is an inherently adversarial relationship. Starting with transparency and the best offer we can make builds a foundation of trust and respect from day one.

The salary, role, and level of every employee is available to all bit.io employees and candidates (it is not posted publicly due to privacy concerns). In addition to current-state transparency, we share a history of equity grants. True equity transparency requires historical transparency. If you don’t know what has been given out so far, you have no record, so it’s not transparent.

In addition to transparency being fairer for employees, it’s fairer to candidates. Negotiations stack the company with market and historical data, and access to recruiters against an individual with access to few, if any, of those resources. Transparency levels the playing field.

It’s to our benefit, too. Since we don’t negotiate, it’s important that we give candidates as much context as we can so they understand the full value of their offer. Giving them the data to make an informed decision is more meaningful than giving them the hard sell.

Why not to do this

There are many reasons not to do this. Setting an infrastructure based on no negotiation — or any rigid HR policy — is antithetical to much of early startup wisdom. The data is indicating that compensation transparency will be better for our business long term, but the long term doesn’t matter if we don’t have a business in six months. Often, it makes sense to throw more money at a person or a problem in the short term to get to the next milestone.

Conversely, we might be paying someone more than they would have asked for during negotiation. It takes time to do our approach thoughtfully and often comes with legal costs. And of course, there are ways for leadership to cheat the system (though, if you’re going to cheat the system, it’s not worth doing it at all).

For us, the reason to commit comes down to building a company driven by the values of inclusion and respect. We’re trying to build a great place to work, which for us means treating people fairly, paying them competitively, and giving them the data they need to make decisions. Data accessibility is the mission of our company. If we can’t commit to it at the company level, then why would we build a product around it?

The policy also helps push value alignment. By implementing this policy, we’re selecting for people who share our values and who will integrate those values into our product and company. Of course, there’s a chance we’ll miss out on someone great who simply can’t make the financials work for whatever reason. As painful as that would be, centering our mission and values early is key to building a company that lasts.