12 ms·

Compensation as a Reflection of Values

108 points by lwhsiao 6y ago

chmod600 6y ago
This feels more practical rather than ideological, which I intend as a compliment. Small team, get people focused, pay enough to not worry about personal financial stress, and let equity act as the primary reward system.
- specialist 6y ago
  > ...pay enough to not worry about personal financial stress, and let equity act as the primary reward system. It's kinda weird that some become billionaires while others struggle. I support generous profit sharing. Equity, bonuses, dividends, and even compensation. Whatever works. How generous? Working towards a Gini coefficient in the 0.25 - 0.3 range is a good start. Enough head room for over achievers, without leaving anyone in the dust.
  - SomewhatLikely 6y ago
    For comparison it looks like US gini coefficient was about 0.48 in 2019.
boulos 6y ago
I think the overall sentiment is right for an early stage company: you don’t want any employees (including the founders!), worrying about covering their expenses. Personally, however, I would be more fluid than “constant dollars”. Some people need more cash, and others need less. There are definitely people who would say “I basically don’t want any cash, just get me health insurance and more lottery tickets” while others would say “Look, I would love to do this, but my family needs take home pay above this level”. Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me. Anyone who reduces their salary is effectively reducing the amount of money needed for fundraising or time to needing funding (and vice versa, for more cash). For that reason, the trade off is also non-linear for the company: early dollars are worth a lot more than later dollars (though the price per share sort of reflects this). Said another way: if you had a $175k baseline salary, but let all employees also exchange $$s-for-shares at the current valuation up to some limit, you should probably do it! (Large company ESPPs are sort of this). Doing this exchange ahead of time is just more tax efficient than “first we pay you cash, then you buy shares from the company”.
- nbclark 6y ago
  Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.
  - SkyPuncher 6y ago
    Wow. That's an absolutely fantastic way to do this.
  - boulos 6y ago
    Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).
    - nbclark 6y ago
      In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
      - boulos 6y ago
        How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)
ehershey 6y ago
There was good discussion when this came out. https://news.ycombinator.com/item?id=26348836 https://news.ycombinator.com/item?id=26348836
h2odragon 6y ago
Sounds good; doubt that policy would fit everywhere but that is a lovely expression of the notion. I wonder how many contractors and consultants this business will be using and how it can extend this attitude to their work? "Day rate salary"?
dejj 6y ago
> Companies spin this by explaining they are merely paying people based on their cost of living, but this is absurd: do we increase someone’s salary when their spouse loses their job or when their kid goes to college? Good to have this pointed out again!
- tzone 6y ago
  Companies pay different amounts based on the location due to market price differences for software developers not because of differences in cost of living. If you relocate to Zurich or Vancouver from SF, highly likely most companies that re-adjust salaries will decrease your salary even though cost of living is pretty high in both of those places.
  - rodonn 6y ago
    I think one of the clearest examples of this is London, where tech salaries are 20-30% lower than SF despite it being roughly as expensive. My friends at Google say Zurich is a better deal that it might seem. Between lower taxes and moderately lower cost of living, your google salary goes a lot further in Zurich than it does in Mountain View.
  - 908B64B197 6y ago
    It's one thing to whine about compensation but if engineers in Zurich or Vancouver want things to change they must vote with their feet and come to the Bay Area. Either that or get VC funding on par with what's happening in the valley.
    - jen20 6y ago
      From Vancouver this is a fairly straightforward proposition (or as I understand it, was one pre-COVID). From Europe, it is _incredibly_ difficult to get a work visa for US. The most egregious example of the difference here is London vs San Francisco. The cost of living is not crazily different, yet the entry level comp in SF is high senior level for most technical jobs. However, my experience is that the Bay Area has a lot of British immigrants (I encounter a new (to me) at least weekly at the large company I work at), so perhaps people are indeed voting that way.
djoldman 6y ago
Paying someone more than a company can get away with is PR spin or a mistake from the shareholder perspective.
- redis_mlc 6y ago
  US Company mgmt. has wide latitude in how they manage a company. The shareholders can always sue, but that's after the fact. So your comment doesn't mean anything.
CyberRabbi 6y ago
I used to consider Cantrill’s position on values to be authentic but after he supported Joyent’s discontinuation of service to Gab solely based on their commitment to freedom of speech, I think his whole “values” shtick isn’t much more than virtue signaling. I say this as someone who deeply disagrees with at least 50% of the people on Gab but nevertheless is committed to liberalism and human rights.
marcinzm 6y ago
>we pay people based on their work No, companies pay based on the supply/demand economics of the particular job and the individual. The work done merely sets a maximum that the company is willing to pay and still get a profit out of the deal. How much you get offered below that is set by the market. The place you live impacts the market of jobs available to you.
- motohagiography 6y ago
  Depends on company stage. If you are growing a startup, you pay for their contribution to high growth. If you are a profitable low growing company, sure, you're optimizing for cost reduction, and not upside. The economics of each stage are very different, as in you burn more fuel on the runway getting into the air than at cruising altitude, or to get off the launchpad and to escape velocity.
  - marcinzm 6y ago
    In the end every company does a supply/demand calculation versus a candidates other opportunities (real and potential). After all, if you can get someone for $150k why would you pay $250k? Sure, some may pay more for a faster hiring or to offset risk or whatever but in the end it's built on top of supply/demand. The theoretical maximum a company could afford to pay is academic since no one offers close to that unless supply/demand forces it. And if the supply/demand goes over the theoretical maximum then the role is outsourced or strategy is adjusted to not need it or some such.
    - motohagiography 6y ago
      If I offer a 50%-75% raise for a role, I'm going to attract the very best talent for it, people who will leave their current roles for the one I'm offering. Supply and demand exist for a specific good, and 1x vs. a 5x or 10x talent aren't comparable goods. This is why I like the flat salary with variable equity model. The incentives are almost beautiful. If the role I'm looking to fill can be filled by cheaper people whose work I'm indifferent to, I should just be outsourcing it because they aren't delivering anything above the transaction, and they won't be be assets to growing a company.
fizx 6y ago
As a side effect, I imagine that this will lead to a very high hiring bar. Without the ability & incentive to hire someone "junior," every interviewer will compare the new hire to their inflated view of themselves.
- pm90 6y ago
  I guess it depends on the person. The author mentions this isn’t a strategy applicable outside the realm of startups. Having worked in that environment, you’re often looking to hire whoever competent you can find to help with the immense backlog you would naturally have.
- doktorhladnjak 6y ago
  I’ve worked at two startups where some variation of the interviewer defining the bar by comparing themselves to candidate occurred. In both cases, it had negative effects on team culture and company dysfunction
tus88 6y ago
What about the cleaners?
motohagiography 6y ago
I like this approach a lot because it aligns people around commitment to the mission instead of being laborers. I missed where it said they do variable comp with equity on top of the flat salary, as that would be a truly a next level win-win. I might also contract out anything below a threshold, which would make the whole thing even more efficient.
doktorhladnjak 6y ago
Interesting read but they hand waved the scaling problems this can create. What do you do when you have to change the compensation system? Do you lower people’s salaries or pay them less than new hires? They’re not going to like that. Do you leave early employees in a legacy system forever? That can reinforce an in crowd/out crowd dynamic among employees which can damage team cohesion.
jariel 6y ago
Would CEO's stop with their visionary cultural moralizing? Why is it when people get in power they do this? Just ask that your team has 'x,y,z as important behaviours' maybe put a few things in place to help that - get over yourselves and get to 'making'.
high_derivative 6y ago
I cringe every time I read startups proudly writing about their unique compensation philosophies. Almost without exception, they have to end up changing it and ending up with typical corporate structures. Because there is a reason for them. Because all employees are not equal. Because some people put in much more work than others. Would be a huge red flag for me, it's typically a special type of arrogance leading people to believe it's not enough to build something new, they also are special enough to re-invent the wheel on every organizational aspect. In a sense I suspect there is a deep immaturity: Not wanting to deal with the realities of having to treat people differently, of struggling to figure out how to reward high performers, how to allocate finite resources. This is then justified in hindsight by coming up with some nonsense like: 'Some will say that this doesn’t offer a career ladder. Uniform compensation causes us to ask some deeper questions: namely, what is a career ladder, anyway? To me, the true objective for all of us should be to always be taking on new challenges — to be unafraid to learn and develop.' This literally does not mean anything. It's just handwaving around not wanting to deal with employee issues. Stay way.

108 points by lwhsiao 6y ago

This feels more practical rather than ideological, which I intend as a compliment. Small team, get people focused, pay enough to not worry about personal financial stress, and let equity act as the primary reward system.

specialist 6y ago
> ...pay enough to not worry about personal financial stress, and let equity act as the primary reward system. It's kinda weird that some become billionaires while others struggle. I support generous profit sharing. Equity, bonuses, dividends, and even compensation. Whatever works. How generous? Working towards a Gini coefficient in the 0.25 - 0.3 range is a good start. Enough head room for over achievers, without leaving anyone in the dust.
- SomewhatLikely 6y ago
  For comparison it looks like US gini coefficient was about 0.48 in 2019.

boulos 6y ago

I think the overall sentiment is right for an early stage company: you don’t want any employees (including the founders!), worrying about covering their expenses. Personally, however, I would be more fluid than “constant dollars”. Some people need more cash, and others need less. There are definitely people who would say “I basically don’t want any cash, just get me health insurance and more lottery tickets” while others would say “Look, I would love to do this, but my family needs take home pay above this level”. Letting employees trade off equity versus cash comp at their discretion via a formula seems fair to me. Anyone who reduces their salary is effectively reducing the amount of money needed for fundraising or time to needing funding (and vice versa, for more cash). For that reason, the trade off is also non-linear for the company: early dollars are worth a lot more than later dollars (though the price per share sort of reflects this). Said another way: if you had a $175k baseline salary, but let all employees also exchange $$s-for-shares at the current valuation up to some limit, you should probably do it! (Large company ESPPs are sort of this). Doing this exchange ahead of time is just more tax efficient than “first we pay you cash, then you buy shares from the company”.

nbclark 6y ago
Agree with you on this. We do that at my company Divvy. Each prospective hire is given 3 different options (varying levels of cash / equity). The "implied" value of all three at the current valuation is the same, but as you mention some people prefer more equity upside and some prefer more cash in hand.
- SkyPuncher 6y ago
  Wow. That's an absolutely fantastic way to do this.
- boulos 6y ago
  Awesome! Any lessons learned? (The main one I’ve seen and worried about is sophistication of employees with their equity. Options are confusing! But that’s true whether it’s a single offer or multiple perspectives).
  - nbclark 6y ago
    In general, it seems to be appreciated. We initially set it up this way to help take some of the stress out of negotiation (as that favors certain people over others). A few learnings off the top of my mind: 1. Regardless of the structure, the offer needs to be competitive. This wouldn't really help with lowballing offers. 2. Across the ~30 offers I've given out, I don't think that either of the 3 variants is more common. I suppose that indicates that different candidates are indeed optimizing for different situations. 3. Our hiring has intentionally skewed more senior and I think the variants of offers has helped create more family friendly offers. Regarding options, I tend to make sure to offer to spend a good bit of time laying out the details of how they work (strike price, preferred value, vesting, cliffs, early exercise, etc.). They are indeed confusing and I find that people typically either overvalue the value of the options today, or undervalue the potential upside.
    - boulos 6y ago
      How much do you space out the three variants? Have you gone beyond the endpoints? (But followed the same curve)

ehershey 6y ago

There was good discussion when this came out. https://news.ycombinator.com/item?id=26348836 https://news.ycombinator.com/item?id=26348836

h2odragon 6y ago

Sounds good; doubt that policy would fit everywhere but that is a lovely expression of the notion. I wonder how many contractors and consultants this business will be using and how it can extend this attitude to their work? "Day rate salary"?

dejj 6y ago

> Companies spin this by explaining they are merely paying people based on their cost of living, but this is absurd: do we increase someone’s salary when their spouse loses their job or when their kid goes to college? Good to have this pointed out again!

tzone 6y ago
Companies pay different amounts based on the location due to market price differences for software developers not because of differences in cost of living. If you relocate to Zurich or Vancouver from SF, highly likely most companies that re-adjust salaries will decrease your salary even though cost of living is pretty high in both of those places.
- rodonn 6y ago
  I think one of the clearest examples of this is London, where tech salaries are 20-30% lower than SF despite it being roughly as expensive. My friends at Google say Zurich is a better deal that it might seem. Between lower taxes and moderately lower cost of living, your google salary goes a lot further in Zurich than it does in Mountain View.
- 908B64B197 6y ago
  It's one thing to whine about compensation but if engineers in Zurich or Vancouver want things to change they must vote with their feet and come to the Bay Area. Either that or get VC funding on par with what's happening in the valley.
  - jen20 6y ago
    From Vancouver this is a fairly straightforward proposition (or as I understand it, was one pre-COVID). From Europe, it is _incredibly_ difficult to get a work visa for US. The most egregious example of the difference here is London vs San Francisco. The cost of living is not crazily different, yet the entry level comp in SF is high senior level for most technical jobs. However, my experience is that the Bay Area has a lot of British immigrants (I encounter a new (to me) at least weekly at the large company I work at), so perhaps people are indeed voting that way.

djoldman 6y ago

Paying someone more than a company can get away with is PR spin or a mistake from the shareholder perspective.

redis_mlc 6y ago
US Company mgmt. has wide latitude in how they manage a company. The shareholders can always sue, but that's after the fact. So your comment doesn't mean anything.

CyberRabbi 6y ago

I used to consider Cantrill’s position on values to be authentic but after he supported Joyent’s discontinuation of service to Gab solely based on their commitment to freedom of speech, I think his whole “values” shtick isn’t much more than virtue signaling. I say this as someone who deeply disagrees with at least 50% of the people on Gab but nevertheless is committed to liberalism and human rights.

marcinzm 6y ago

>we pay people based on their work No, companies pay based on the supply/demand economics of the particular job and the individual. The work done merely sets a maximum that the company is willing to pay and still get a profit out of the deal. How much you get offered below that is set by the market. The place you live impacts the market of jobs available to you.

motohagiography 6y ago
Depends on company stage. If you are growing a startup, you pay for their contribution to high growth. If you are a profitable low growing company, sure, you're optimizing for cost reduction, and not upside. The economics of each stage are very different, as in you burn more fuel on the runway getting into the air than at cruising altitude, or to get off the launchpad and to escape velocity.
- marcinzm 6y ago
  In the end every company does a supply/demand calculation versus a candidates other opportunities (real and potential). After all, if you can get someone for $150k why would you pay $250k? Sure, some may pay more for a faster hiring or to offset risk or whatever but in the end it's built on top of supply/demand. The theoretical maximum a company could afford to pay is academic since no one offers close to that unless supply/demand forces it. And if the supply/demand goes over the theoretical maximum then the role is outsourced or strategy is adjusted to not need it or some such.
  - motohagiography 6y ago
    If I offer a 50%-75% raise for a role, I'm going to attract the very best talent for it, people who will leave their current roles for the one I'm offering. Supply and demand exist for a specific good, and 1x vs. a 5x or 10x talent aren't comparable goods. This is why I like the flat salary with variable equity model. The incentives are almost beautiful. If the role I'm looking to fill can be filled by cheaper people whose work I'm indifferent to, I should just be outsourcing it because they aren't delivering anything above the transaction, and they won't be be assets to growing a company.

fizx 6y ago

As a side effect, I imagine that this will lead to a very high hiring bar. Without the ability & incentive to hire someone "junior," every interviewer will compare the new hire to their inflated view of themselves.

pm90 6y ago
I guess it depends on the person. The author mentions this isn’t a strategy applicable outside the realm of startups. Having worked in that environment, you’re often looking to hire whoever competent you can find to help with the immense backlog you would naturally have.
doktorhladnjak 6y ago
I’ve worked at two startups where some variation of the interviewer defining the bar by comparing themselves to candidate occurred. In both cases, it had negative effects on team culture and company dysfunction

tus88 6y ago

What about the cleaners?

motohagiography 6y ago

I like this approach a lot because it aligns people around commitment to the mission instead of being laborers. I missed where it said they do variable comp with equity on top of the flat salary, as that would be a truly a next level win-win. I might also contract out anything below a threshold, which would make the whole thing even more efficient.

doktorhladnjak 6y ago

Interesting read but they hand waved the scaling problems this can create. What do you do when you have to change the compensation system? Do you lower people’s salaries or pay them less than new hires? They’re not going to like that. Do you leave early employees in a legacy system forever? That can reinforce an in crowd/out crowd dynamic among employees which can damage team cohesion.

jariel 6y ago

Would CEO's stop with their visionary cultural moralizing? Why is it when people get in power they do this? Just ask that your team has 'x,y,z as important behaviours' maybe put a few things in place to help that - get over yourselves and get to 'making'.

high_derivative 6y ago

I cringe every time I read startups proudly writing about their unique compensation philosophies. Almost without exception, they have to end up changing it and ending up with typical corporate structures. Because there is a reason for them. Because all employees are not equal. Because some people put in much more work than others. Would be a huge red flag for me, it's typically a special type of arrogance leading people to believe it's not enough to build something new, they also are special enough to re-invent the wheel on every organizational aspect. In a sense I suspect there is a deep immaturity: Not wanting to deal with the realities of having to treat people differently, of struggling to figure out how to reward high performers, how to allocate finite resources. This is then justified in hindsight by coming up with some nonsense like: 'Some will say that this doesn’t offer a career ladder. Uniform compensation causes us to ask some deeper questions: namely, what is a career ladder, anyway? To me, the true objective for all of us should be to always be taking on new challenges — to be unafraid to learn and develop.' This literally does not mean anything. It's just handwaving around not wanting to deal with employee issues. Stay way.