Most compensation discussions focus on pay transparency and pay equity. These conversations are meaningful but fall short. Compensation is one of essential tools leaders have to convey who and what they value and reward their teams. It influences employees’ experiences from their first touch-point with a company to their ongoing satisfaction. As jurisdictions around the country roll out new pay transparency mandates, leaders should go beyond complying and take a hard look at their underlying compensation philosophy.
Most companies follow a reasonably standard compensation model. Those working in revenue-generating functions, such as sales, engineering, or professional services, get paid the most because they are perceived as generating the most value for the company. And they are rewarded for it. On the other hand, support functions, such as customer service, human resources, or finance, get paid less for the same amount of work. In addition, Black and Latinx workers tend to be underrepresented in the higher-valued functions, amplifying pay inequities.
At Next Street, a mission-driven strategy and solutions firm, we flipped this model for our people by creating a new compensation framework aligned with our values. These changes have helped strengthen our business, too—we have doubled our headcount in two years, attracted a team of 80% people of color and/or women, and retained over 95% of staff over the past two years.
As a people-driven business committed to antiracism, we realized it was not aligned with our firm ethos to value our team members’ contributions differently. This means seeing the unique value in each role in our company. For example, while hiring an HR coordinator is not quantifiable in dollars, it is equally critical to the success of our company as the work of our consulting analyst.
In the winter of 2022, we rolled out a new compensation framework aligned with our organizational values of antiracism and sustainable growth. We designed the framework with the following principles:
- Equity: We created consistent compensation bands for the entire firm, so team members at the same level, regardless of function or business line, are compensated the same. For example, an operations coordinator is in the same band as a consulting analyst or jr. product manager.
- Rigor: We tied merit-based compensation increases and promotions to the outcomes of our performance review process. We use a clear numerical formula to inform how staff progresses through our compensation bands.
- Radical transparency: We documented everything a team member needs to know about how their performance is measured, how their compensation is adjusted, and when they are eligible for the promotion. This gives staff complete clarity on what is needed to advance.
Change can be challenging, so we took several steps to ensure the successful roll-out of the framework.
Took input from our DEI committee
We sought feedback from our governance committee on the framework before it was finalized to ensure it responded to staff desires and to account for any perspectives we had yet to consider. The committee suggested that we use the roll-out of the new framework to stop negotiating salary offers with new hires.
Historically, people of color and women do not negotiate, and when they do, they are subject to biases. We took their guidance and stopped negotiating with candidates, further aligning our people practices with our values. We make it crystal clear in our job requisitions that we will not negotiate on compensation and then hold to that firmly in the application process. This helps manage the expectations of candidates while helping us attract values-aligned candidates who believe in and appreciate our approach.
Trained people leaders
We held an orientation for people leaders before announcing the framework to the entire firm. This helped build awareness and excitement around the changes and equipped them to advise their teams on the new approach.
Celebrated with our staff
We took a celebratory tone when we rolled out the new framework to our staff. As a leadership team, we wanted to be clear that this was not a check-the-box or obligatory action. It was something we were proud of and saw as an investment in and recognition of our teams, as well as a deepening of our antiracism commitment.
Made the information easily accessible
Our new compensation framework and supporting policy documents are now published on our shared drive and available for our team members to access at any point. We also discuss our compensation approach with candidates, helping them know our culture better before joining and empowering them with information to manage their salary progression.
While we have made significant strides to align our compensation with our values, there is more we can and need to do to improve our compensation approach. For example, we will start publicizing our salary ranges on new job requisitions soon. We are also beginning to analyze and publish data around pay and promotions by demographic groups. We’ll do what it takes to continue to be a proud, antiracist company.