editione1.0.8Updated August 24, 2022
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When you start talking about pay transparency, the first thing everyone thinks is ‘I’m going to know how much everybody makes.’ I think a better way to frame it is ‘I’m going to understand why I’m paid what I’m paid and how I can increase my comp.’bethanye McKinney Blount, founder and CEO, Compaas*
An important decision for leadership to make is how much transparency to offer in compensation and leveling. The social media management company Buffer holds transparency as a key value and has made compensation information completely transparent, publishing not only formulas for how they determine compensation, but also publicly releasing every employee’s salary and level. That level of extreme transparency is rare, but many companies appreciate the benefits of some level of transparency around compensation.
caution However, there are many other companies that try to avoid any level of transparency around compensation in order to avoid negotiation with candidates. This is both unrealistic and counterproductive; and in some cases it might even be illegal (for instance, in California, employers have to provide pay scales for positions when asked, but it’s complicated). First, platforms like Glassdoor or Blind (or plain old gossip) usually make compensation data for most companies available to the public. Second, avoiding a conversation about a candidate’s level and expected impact might only end up kicking the can down the road and creating surprises later—and these conversations are a lot more difficult to have after someone joins a company.
First Round has some additional insights into why it is wise to treat compensation transparency as a spectrum, and shares some of the risks involved. It’s perhaps best to consider a middle ground, which might not entail making everyone’s salary and level public (though Buffer has enjoyed positive reactions to their efforts), but could include letting candidates know what level they would be joining at, and then letting them access information about what you expect at different levels. This can help set expectations around their role when they join and point to future avenues for growth. You can do this directly with a candidate or by publicly sharing your rubric or ladder. You can also explain the logic behind how you determine candidate compensation. This will help force you to be fair about how you compensate, while potentially avoiding zero-sum negotiations.
If you would be mortified to find out that all your team or company’s compensation data was leaked to the public, asking yourself why can be very eye-opening. There are serious pros and cons to consider on both sides of the debate, and each company has the right to decide where on the spectrum they belong; but it’s wise to reflect on how you compensate your team before you post a job opening or extend an offer. If you wouldn’t be comfortable explaining to a candidate how you arrived at their compensation package, you may need to take a look at your current approach and go back to the drawing board.
Having a clear policy around compensation, levels, and titles can help make sure you are able to attract the right talent for the right reasons. However, you will come across cases where your structure doesn’t quite match candidate expectations. After all, the data you gathered about the market or about the candidate may not be perfect.
While ignoring your structure may lead to arbitrary and unfair decisions, sticking to your policy too rigidly may result in losing out on great candidates. (Some people are OK with this in the long run, based on their specific values and hiring philosophy.) No incentive structure is perfect. So when and how should you make exceptions?
A balanced approach would be for every company to be highly disciplined about how they compensate employees, but allow themselves a certain degree of flexibility to exercise in certain situations. These guidelines may be useful: