Why startups aren't ready to be transparent about pay

Most startups aren’t ready for the pay transparency laws going into effect in the coming months, according to compensation experts. The first step for many will be setting up internal pay bands — a task that isn’t at the top of most startup leaders’ to-do lists.

• California’s law, which goes into effect Jan. 1, applies to companies that employ 15 or more workers. But few early-stage startups crossing that 15-head threshold have an HR function, and many haven’t defined their pay ranges.
• Matt Schulman, founder and CEO of compensation technology startup Pave, estimates that only one in four startups will be ready to be transparent about pay ranges by January — and that the vast majority of early-stage startups haven’t established pay ranges. “I bet, like, 95% of 20-person startups don’t even have a notion of compensation bands at this point,” Schulman said.
• “A lot of companies, shockingly, don’t always know if these laws apply to them,” said Kaitlyn Knopp, founder and CEO of compensation software maker Pequity. Companies typically establish pay bands when they hit 40 or 50 employees — around the time they start hiring middle managers, Knopp said.

A big part of standardizing pay: employee communication. Heather Sullivan, who took over as Astranis Space Technologies’ first permanent chief people officer in July, is only now setting up pay ranges at the company, which has around 270 employees.

• “It’s a ton of work,” Sullivan said. Much of that work is internal change management and communication around pay transparency, she said. “So if they see a number or set of numbers on the website, they’re not, like, ‘Hey, what the hell?’”
• In addition to building pay ranges and training leaders on how to talk with employees about progressing through a range, Sullivan said, part of the work is defining a philosophy around pay.
• There will “always” be an upward pay adjustment when setting up pay ranges for the first time, Knopp said. “That’s healthy, because the market’s always moving,” Knopp said. “You’re giving raises, which are celebrated.”

Standardizing pay as early as possible can help companies know how they measure up to competitors and prevent pay inequity from forming, Knopp said. Pay disparities result from inconsistent practices.

• Pay disparities are “hardly malicious,” and are most often the result of not being systematic, according to Knopp. “It’s usually actually people who have the best of intention, where they’re like, ‘I’m really going to swing hard for this candidate — I’m going to go all out because they deserve it,’” she said.
• Plus, the sooner companies set up pay bands, the easier it will be to do. “It doesn’t require a deep job architecture process to have a general range that you would pay for the role,” said Maria Colacurcio, CEO of fair pay software maker Syndio.
• And starting early can avoid gaps that will only get more expensive to fix later on, Colacurcio said: “The risks compound over time, and those risks get bigger and bigger.”