the need for true equity in equity compensation

My professional journey began at Oracle in the mid-1980s, and since then I’ve gained extensive experience across numerous organizations, especially within Silicon Valley. I’ve collaborated with businesses of all sizes, from Fortune 50 companies and global consulting firms to a variety of startup ventures, including the SaaS company I currently lead. Throughout my career, I’ve developed specialized expertise in both the technology sector and the design and execution of worldwide compensation strategies.

Simply put, my core strengths lie in understanding technology and the intricacies of employee remuneration.

The changes I’ve observed in compensation practices over the last 35+ years have been substantial. Notably, there’s been a significant, and generally positive, evolution in how women are viewed and compensated. However, some of these changes have been primarily for public relations purposes. While promoting a diverse and inclusive culture is beneficial for attracting skilled professionals, true accountability comes when companies consistently uphold their stated values. Instances of public backlash, such as those recently experienced by Pinterest and Carta, demonstrate the consequences of failing to do so.

Despite public commitments to gender pay equity from companies like Intel, Salesforce, and Apple, we are still far from achieving true equality. While the glass ceiling is showing cracks, considerable, largely unaddressed disparities persist, particularly concerning the broader spectrum of long-term compensation for women. This is especially true in the startup world, where crucial elements of financial reward, like stock options, are often excluded from discussions about pay parity.

As a starting point, while improvements are visible, gender pay equity remains an ongoing process. Recent data from the U.S. Bureau of Labor Statistics reveals that white women earn 83.3% of what their white male counterparts make, while African-American women earn 93.7% compared to men of their same race. Asian women earn 77.1% and Hispanic women earn 85.1% respectively.

According to Payscale, the gap in median earnings between women and men has narrowed by only $0.07 since 2015, and in 2020, women earned $0.81 for every dollar earned by a man. Over a 40-year career, this discrepancy could result in women losing as much as $900,000 in potential earnings.

However, this represents only a portion of the issue. Even if we focus solely on the cash salary component of the gender pay gap, there is still more to consider. As a well-known spokesperson might say, “But wait, there’s more!” And this additional factor, in my opinion, is even more concerning.

As innovative startups continue to emerge in locations like Silicon Valley and New York’s Silicon Alley, how do they attract talented, entrepreneurial individuals? It’s rarely through high salaries, as companies with little more than a promising concept and potential venture capital connections often lack the resources for substantial paychecks or comprehensive benefits. Instead, they offer the potential of stock or equity compensation.

“We understand you could earn $180,000 annually at Apple, but we can offer $48,000 per year plus 1,000 shares currently valued at $62 each. Our board – comprised of prominent figures from the Bay Area – anticipates significant growth within two years! Just wait until we become a public company!”

This is a common pitch, particularly for promising male candidates. However, women have historically been less likely to receive this type of lucrative reward package for a variety of reasons.

How has this situation arisen? Beyond the perpetuation of existing business practices, while legislative measures have been taken to address inequities in public company compensation and stock distribution, there are currently no regulations governing how private companies allocate or manage stock appreciation. And, as we all know, that appreciation can be substantial.

It’s logical that many view equity as the “third pillar” of compensation, alongside salary and benefits. Shares in startups are often overlooked or misunderstood by those examining gender pay inequities, which is a significant oversight.

A recent study published in the “Journal of Applied Psychology” revealed a gender gap in equity-based awards ranging from 15% to 30% – even after accounting for traditional factors contributing to pay disparities, such as differences in job function and tenure. It’s important to remember that many of these companies will eventually achieve significant valuations, potentially through successful IPOs or acquisitions.

This is an issue I recognized some time ago, and it’s a primary reason I accepted the leadership role at our Bay Area startup on behalf of our New York-based parent company AST. I was drawn to a genuine commitment to an equitable culture, rooted in a shared ethical foundation, a belief that companies prioritizing gender equity achieve better performance and returns, and a conviction that diversity fosters unique perspectives, enhances talent retention, strengthens company culture, and improves client satisfaction.

In conversations with industry peers, I know that CEOs, both male and female, are dedicated to addressing this challenge. I believe a comprehensive view of compensation is crucial for startups, global corporations, and all organizations. If you are in a leadership position and recognize this as an issue within your company, here are some steps I recommend implementing:

1. Analyze the data: Conduct a thorough analysis to determine if a disparity exists within your company, and if so, commit to creating a fair and equitable environment. Numerous experienced consultants can assist you in developing remediation strategies.
2. Ensure objectivity: Engage an independent third party to analyze your data, removing potential bias and political considerations from the process.
3. Establish compensation bands: Similar to the government’s GS system, create a salary grade structure with defined compensation ranges for specific roles. Determine the appropriate band for each position before making a hiring decision.
4. Designate an advocate: Identify and empower an internal champion to prioritize pay parity – someone whose performance evaluation is directly tied to achieving equity throughout the organization. Rather than assigning this responsibility to your human resources leader, consider creating a Chief Diversity Officer role to oversee it. This is a matter that extends beyond pay and benefits; it’s fundamental to your company’s culture.
5. Secure board support: Educate your board of directors on the importance of this issue. If your board does not prioritize equity, your efforts will likely be unsuccessful. Consider appointing a “culture chair” to your audit or nominations committee.

One of the first reports we developed is a Pay Comparison Report, providing management with a readily accessible tool to review stock grants and ensure equity among employees of different ethnicities and genders. It’s achievable if you are committed to examining the data.

When I graduated from college during the Reagan administration, the potential for women to break the glass ceiling was a common topic of discussion. Now, decades later, we have technology that allows us to control lights with a clap and access the power of a supercomputer in our hands. Is it too much to ask that we prioritize gender pay equity – encompassing all three pillars of compensation (salary, benefits, and stock) – as a fundamental principle?