Compensation Conversations
Transparency in Talent Data
In 2006 Facebook was two years old and had only just expanded beyond college students. Google was eight years old but had only barely crossed 200 billlion searches (vs 2 trillion today). That same year a well-known marketing expert named Clive Humbly gave a talk called "Data is the new oil."
That might have felt like a pretty bold statement when you considered only 15% of the world was even online. Fast forward almost twenty years. Today nearly 70% of the world is online and we're generating at least 1.7 MB of data per person per second. Data lives in and around every aspect of our lives, whether we like it or not.
Unfortunately an explosion of data about every aspect of the world around us hasn't led to any utopian revolutions.
"Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?" (T.S. Eliot)
Instead it has led to "walled gardens." Every company that helps to generate and collect data has been focused on their own ecosystems and driving towards their own advantage.
The most fiery debate surrounding technology is around transparency and ownership of data. A revolution in data privacy has led to laws like GDPR and CCPA. All of this is indicative of a world that wants to build forward enabled by data rather than to be divided and monetized by the gatekeepers of data.
Pillars of Data
If data is the new oil then the "oil industry" is booming. Companies are estimated to spend $850B+ around cloud data infrastructure with public cloud companies stepping in as the backbone of our data infrastructure and generating $100B+ of revenue. Some of the most well-known VC-backed darlings like Snowflake, Datadog, Okta, and Twilio all revolve around building the "pipelines" for a wide variety of data.
In the simplest sense when you think about the types of data a tech company requires to be successful they typically fall into a few internal and external buckets.
First, you typically have a product. So internally you need to understand how your product is built and performing, and externally you need to understand how your users are interacting with it. When it comes to the operations of your business you're tracking data around your financial performance (typically non-person related) and the humans involved in building your business (very person related).
The vast majority of data infrastructure technology today revolves around product and user data and making sure you're able to move data around effectively within your product and to understand your users in order to improve your product.
When you think about stodgy old systems those are mostly the finance and HR systems. Painfully outdated and woefully less-than-insightful.
While financial data would certainly benefit from more perspective and transparency there is only so much you can compare before you're looking at apples vs. oranges. For example, if you're a food marketplace you'd love to better understand the benchmarks when comparing your gross margins to your competitors. But they often have a very different structure.
The most human element of any business's "data stack" is, obviously, talent. The human resources data landscape. Understanding how people are hired, paid, managed, evaluated, and transitioned is a function that touches the lives of anyone who works in a company. And there is a significant lack of transparency across the board. Particularly in the world of compensation.
What is Compensation Data?
The data behind what you pay a particular person for a particular role may feel pretty mundane. But it isn't about specific instances of compensation that make this such a powerful data set. It’s the universality of the data. Everyone in every role impacts how different roles are valued.
GitLab was an early pioneer in remote work, growing to over 1K employees without ever having an official office. As part of managing a massive remote team they created a Compensation Calculator that would adjust their offers based on location.
That was a pretty straightforward process for a unique company that was spread across many locations, and wasn't particularly relevant for the vast majority of companies. That all changed during COVID as the percentage of tech workers working remotely jumped from 22% to 48%
Rather than creating a new problem COVID simply shed light on an aspect of building a business that has always been complex: competitive and equitable compensation. Already we're starting to see attempts at tackling the gender and racial pay gap but none of that comes without transparency. Understanding the always-changing landscape for compensation is incredibly complex, especially as we experience a significant market correction and economic uncertainty.
Compensation Conversations
Back in February I wrote an article where I thought through what a valuation meant for a VC, a founder, and an employee. This piece seemed fairly boring to me and involved the most spreadsheet math of any piece I've written. But much to my surprise it actually became my second most popular piece to this day.
This idea of just how complex fair compensation can be, especially in the high risk environment of building a tech company, resonated with people:
"A private company valuation is a balancing of perspectives. The investor's. The founder's. And the employee's. Each is, or at least should be, an important part of the conversation. The employee struggle is the most difficult in this intricate dance because you have very little information and next to no negotiating power."
Compensation includes both cash compensation and equity, which is tied directly to a company's valuation. Making sure that that compensation adequately reflects an individual's contribution is difficult to nail down. For the last few years compensation primarily revolved around who can do "the most good" for their employees. More competitive packages, salaries, and perks. But in the last few months we're seeing examples of companies actively doing harm to their employees. There's never been more need for a transparent compensation experience.
The existing status quo in understanding the landscape for compensation data relies primarily on a complex web of consultants and spreadsheets that are 6+ months out of date by the time you even get them. Most people are familiar with solutions like Option Impact and Radford as the de facto sources of data. Anyone who has used them can tell you how painful they are.
Pave Enters The Conversation
Earlier this week I announced Contrary's investment in Pave's Series C.* One of my favorite company characteristics to invest behind are companies that can become critical pillars of their particular value chain. Pave is exactly that. I've already pointed to the antiquated access to data that exists today. Pave has built a data network across 2K+ companies and 240K+ employees.
Now with the recent announcement of Pave's acquisition of Option Impact they are officially the leading provider of compensation data. A company's ability to benchmark their compensation strategy to a competitive market will obviously help them to stay relevant, but it also empowers employees to make sure they're able to access high quality data. That's one small victory in an attempt to better empower employees across companies of all shapes and sizes.
A few months ago Nikhil Trivedi had an excellent piece about Employee-VC alignment. He pointed to a tweet from Jack Altman that also resonated with me:
The unfortunate reality is that the current market correction is already shifting the power balance back towards VCs in a way that pulls us further away from aligning the best interests of employees. That shift isn't inevitable, it's simply "the path of least resistance." The only way to maintain the movement towards employee power is heightened transparency.
The Contrary Angle
A lot of my writing is about the inner workings of venture capital, and I often finish my writing with a section on "what does this mean for venture?" When I explore topics that I've deliberately invested in, like today with my investment in Pave, I'll try and illustrate the inner workings of how we made the decision at Contrary. Pointing to the venture capital implications out loud.
I've written before about the Contrary flywheel. Two things we look for in the investments we make are (1) identifying the most exceptional vortexes of talent in the tech world, and (2) identifying a symbiotic relationship between the later stage companies we invest in and the 300+ person community we focus on supporting.
That support usually comes in the form of helping companies identify world-class talent in our community, and helping our community members find jobs at world-class companies. Not only is Pave an exceptional talent vortex but they offer another unique benefit to our community: transparency.
Pave has partnered with over 100 venture firms to enable their portfolio companies to access their benchmarking data. We're able to do the same thing with our community. The exceptional people we work to support throughout their careers have access to the latest market pulse on compensation data in order to most effectively pursue the role of their dreams.
When I make an investment I often have a section in my investment memos entitled "dream the dream." At Index we called this a "pre-parade." A few weeks ago I wrote about the long and rarified road to becoming a multi-product platform. One of the critical steps along that journey is "ubiquity." Pave's opportunity to achieve ubiquity comes from becoming the de facto solution for managing compensation for tech companies and beyond. The result of that is creating a generational data asset that the vast majority of companies rely on.
*Stating the obvious, but I am an investor in Pave so I'm certainly biased in their favor. Take that into consideration.
A next step for Pave (and other comp tool) is to help make negotiation more seamless & effective for employees :)