Using compensation to attract top talent with Patrick from Payspective
Salary is one of the first things a candidate will look at when considering a role, but there is much more to think about when it comes to compensation.
- How does an organisation know what to pay in the market that is changing so quickly?
- How often do you think organisations should update those data sets?
- Should you advertise salary in the job ad?
- Do people place more value on base salary over other forms of compensation?
- Should you pay salaries benchmarked where the company or the employee is located?
- Are stock options an attractive tool to attract talent?
- Where can we learn more about stock options?
- What's the going salary for junior London candidates right now?
As we know, the market is changing rapidly at the moment. And with remote working, it's becoming a massive challenge for companies to know how much to pay their staff. So, how does an organisation know what to pay in a market that is changing so quickly?
Great question. Unfortunately, there's no super-easy answer (fortunately for me - otherwise Payspective probably wouldn't exist!).
Get your hands on as much data as you possibly can. I think paying by gut feel can sometimes go wrong. For instance, in the last few years we've seen tech salaries pick up really quickly. If you just offered candidates the same that you offered them two years ago because that's what your gut says, or you think a 5% yearly pay rise should work, then you're likely to get a lot of offers rejected. So I think it's really important to have access to the latest data.
Now, your follow up question on that would be, where should the data come from?
In my mind, there are a few different sources you could go after, depending on what exactly you're looking for. If you're looking for data for one specific role that you're hiring for, you'd be surprised by how much you can get out of your network.
VC’s typically have a lot of data or if they don’t, they can connect you to other companies who do. Public data sources like LinkedIn or Glassdoor can also be good starting points. Frankly, they're not immensely reliable, and you might run into issues in terms of how recent and comparable the data is, but there's still quite a lot you can get from public sources to narrow it down.
When you do need something more comprehensive or when you want to really pin it down, it usually pays off to buy data or benchmarks. By doing this you ensure you really get apple to apple comparisons and up to date figures. If you're a 50 person startup, you won't want to compare yourself to Amazon and Google, but you will want to know what other similar-sized companies in the same industry have paid for a role in the last few months.
This is something we're supporting a lot of at Payspective. We feel it’s most relevant to focus on the startup and scale-up world because this is where it’s really difficult to get that apple to apple comparison.
To sum up, data is key!
How often do you think organisations should update those data sets?
That probably depends on the stage of the organisation. If you're a ten-person start-up, a lot of what you're offering is probably an opportunity for growth (stock options etc). When you become a larger company and you're hiring significantly more, then this suddenly becomes a lot more relevant.
You just always want to make sure that you have access to recent data, and you probably want to do it on a biannual basis. Ideally, you'd have access to a tool that is interactive and always has the latest and greatest data. Then you can just go in and look at what your current benchmarks look like as you're hiring.
Overall, I would say the larger your company, the more frequently you should want to get updated, comprehensive benchmarking.
There's a lot of debate about advertising salaries on job descriptions. What's your take on and how do you think companies should approach it?
Another great question!
So I think a big pro of advertising salary ranges or the precise salary on a job ad is that you just get more relevant candidates to apply. Our sister company Movemeon did research on this. They found that job ads that showed the salary got more applicants and the people that did apply were more relevant for the role.
A lot of people think “well if it's so competitive, why don't you just put the number there?”
Say you're advertising for a role and your budget is between £40-50k. If you just put ‘competitive’, you may get a significant number of applicants who expect at least £80k. You'll interview them, they'll go through the process, and at the end they'll say “hey, my minimum expectation is £80k”. You've now wasted yours and their time because you just can't afford them. So I think there's a lot to be said for advertising salaries.
That being said, I think there are also situations where, especially if you're just not in a position to pay a high base salary, you may miss out on some great applications if you put that relatively low base salary that you can offer.
This is where it’s important to emphasise the other things that still make your package competitive. Maybe you're offering a really big stock option package or a lot of equity. Maybe you offer crazy benefits. Maybe you have huge growth or bonus potential. Then if you just put the relatively low base number out there, you might get some people who might otherwise be interested in the opportunity to not even look at it. When actually, the package that you're offering overall with options and bonuses is actually really competitive.
A way around that would just be to not only put base salary but to frame it a little more in terms of total compensation. I always think the more transparency the better in terms of attracting good and relevant candidates to an opportunity. You can still advertise exact numbers, like the value of stock options or the average bonus historically awarded, then summarise by saying ‘this would mean a total compensation of X’. You’re being as transparent as possible and still have a good chance of attracting great candidates.
When candidates are applying for roles, do you think that they tend to place more value on the base salary over additional compensation like stock options and benefits?
Definitely. I think it's safe to say that basic salary is the pillar of every job offer. Typically it’s the number one thing that the candidates will look at. You could obviously just make your recruiting life very easy by paying astronomical base salaries. The reality is that a lot of companies, especially in the startup and scale-up world, just can't afford to pay what Google pays. And that’s okay, as long as you have the right story and other types of compensation.
It is possible to offer a lower salary if the story is right. You may offer a great benefits package, a good bonus, stock options, a great culture work-life balance etc. The role and opportunity may just be really interesting or have a huge opportunity for growth. You may have a really diverse team. You may have any number of other things that make the role and the opportunity really attractive to someone who's currently on a higher salary. So what you need is a good but also a really honest story about why you believe that the offer is the best one that a person could get, even if the basic salary is lower.
I've personally actually been in a position where I came out of a job that paid a relatively high salary, turned down another offer with a quite attractive base salary, and went for something that was a lot more speculative. They just had a great story around it and a great future potential, both in terms of personal growth, but also in terms of compensation.
Getting this whole employer value proposition right is really important, and it's not all about base salary.
When hiring remotely, should you pay salaries benchmarked where the company or the employee are located?
There's a lot of complexity here. Let's try to break it down a little bit.
If you have people in different countries, let’s say some people in the UK and some people in Argentina for example. It doesn't necessarily make sense to pay the people in Argentina the same that you pay the people in the UK. And they also usually wouldn't expect that either. They'd probably be employed by a different entity of the company, so it's not usually perceived as unfair, and it actually makes sense to pay different packages.
Now, that being said, if you’re a startup, you probably don't have the means or also not the willingness to benchmark every single role for every single geography that you possibly could have. So maybe when you set up your salary binding process, you could be quite pragmatic about it and implement a percentage adjustment. You could say something like; we pay someone in the UK 30% more than someone in Argentina, no matter which role. Then implement something similar for different regions. I think it definitely does make sense to have differences in pay when there are different countries involved.
Now, I think a lot of the complexity arises when you start to talk about remote hiring within the same country. Let’s take the UK for example. Maybe you have an office in London, and therefore people on London salaries. But now most have actually moved out of the city and are not coming to the office or coming in very rarely. Should they still be paid the same?
The answer is it depends on your strategy and policies. If you're marketing yourself as a fully remote company and you tell people in the recruitment process you can work from anywhere in the world with full flexibility, it does imply that you feel like people can add the same value to the company whether they're in London, Aberdeen or Newcastle. It then feels a bit awkward to say you can live and work anywhere, but if it's in London, we pay you more. If it's outside, we’ll pay you less.
On the other hand, if you're a fully office-based company and you expect everyone to come to the London office, you'll also want to make sure that you pay everyone London based salaries.
Recently, Google gave people the option to work from home, but said it will come with a substantial pay cut if they do so permanently. Based on that, we ran a poll with our community asking if they thought it was fair to pay people less if they just work remotely. 85% said they think it's unfair if your package differs because you're working remotely.
If you're delivering the same thing, there's very little acceptance from people to have different salary bands within the same company within the same country. Long story short, overall I would say you probably want to pay people within the same country the same salary, for the same role.
Are stock options an attractive tool to attract talent?
Another good question. I’d say they are, but not always.
First of all, it’s interesting to note that there's currently a trend of this in the UK. More and more startups are giving stock options to all or most of their employees. In the past, they were typically reserved for leadership positions. So there seems to be definitely a thinking among startups and their executives that, yes, they are an effective tool for talent acquisition.
The best way to think about it is a junior/senior split.
In senior and leadership roles, stock options can be a great substitute for cash compensation. If you're a growing business you want to attract top-notch talent, but you just don't have the cash to pay what Google can. A good stock option package or equity can be the solution to fill that gap.
On a more junior level, the market is also very competitive at the moment. Good people typically have a lot of opportunities outside of the startup world. So again, stock options could make the difference between someone accepting or declining your offer. People know they could probably earn 10 or 20% more in a big corporation, but they may be swayed by the opportunity to grow financially with the company.
That being said, stock options aren't a silver bullet. If you offer someone a salary that they can barely live off, and then tell them as an afterthought “but you'll get X amount of stock options” that won't suddenly make the offer attractive. You want to see equity as a complement to an attractive package, but understand it’s unlikely to be the only reason why someone joins you, especially on a junior level.
Take someone coming straight out of University, living in London, on a £25K base salary - £2k a year more will have a big influence on their lives and what they can afford. Whereas a stock option package seems like something very delayed, something for the future that doesn't really have any tangible value now.
To summarize, if you educate people on stock options and manage to convey their value to people effectively, then, yes, it can be a very effective tool to attract talent. But by no means are they a silver bullet and you can’t make up for an otherwise very uncompetitive package just by throwing some stock options into the mix.
Where can organisations get information as to what a good stock option package looks like?
There are a few quite interesting tools out there. I think number one, going back to what I said at the very beginning, is network. VC’s will have had this conversation with so many other companies, and they'll have data. They'll know what other companies have done and what an attractive package is.
To be honest, you can find a lot just by Googling. Search ‘what's a competitive stock option package for early-stage employees’ and you’ll get a lot of really cool tech crunch articles of other founders relaying their experience and what they've done.
Index Ventures actually recently launched a really cool stock options calculator tool. You input the stage you are at, what exit valuation you're going for, what role you're hiring someone in, and they’ll make a recommendation on the number of stock options you should offer.
Finally, there's always also the option of getting someone in. If you're designing a completely new stock option program, you may just get someone who has done it before. At Payspective, we're working on equity quite a lot and it's also part of our benchmarking.
From your experience, what’s the going London wage at the moment for candidates coming out of University or starting their career?
It really depends on the role. If they're a software engineer, they probably come in at £35-40k. If they come into operations, customer service, sometimes marketing roles, the starting salary is often still much lower than that, between around £22-26k. Interestingly, this has been picking up recently.
We're now actually working with a few companies that have set themselves a minimum wage that they’ll pay. For example, they're saying they’ll pay no less than £32,000. This does come with its challenges, however. Yes, you will be very attractive for grads because you're paying a lot over the market, especially in roles like customer service, but it just makes it a lot harder to have the kind of progression people are after. If you're already starting in a role like that at £32k, and that's the salary that typically people have after two or three years in that role, then how do you progress in the organization over the next few years?