Tech comp trends in early 2023

A conversation with total rewards consultant Stacey Bearden

I recently sat down with my friend Stacey Bearden, long-time comp consultant, to talk about her observations in the high-growth highly-volatile tech market in early 2023.

Getting right into it, we’ve heard mixed signals on what companies are doing with equity given the state of the market.

What are you doing with your stock guidelines?

About Stacey

Stacey Bearden is a total rewards and people consultant and leader who helps companies by providing compensation expertise, designing and executing on projects, and providing interim leadership.

Recent clients include Figma, Cruise, Samsara, and Stitch Fix. And many years ago we consulted together at Mercer.

Resetting equity bands

I’m hearing that many companies are considering lowering equity targets, although flying blind because survey data hasn’t caught up with reality yet.

Here’s why, imagining you’re the comp team at Bill.com (NYSE: BILL) with a grant guideline midpoint of $100k:

• Stock price last year: $225

• Stock price this now: $94 (-58%)

• Grant guideline last year: $100k = 444 shares

• Grant guideline now: $100k = 1,063 shares (2.4x)

Shareholders aren’t going to go for doubling your equity burn rate — there’s just no way.

So comp committees are looking for ways to reduce equity burn rate, whether lowering targets or shortening vesting periods from 4 years to 1-2 years to reduce overhang.

Stacey hasn’t seen a general trend in lowering equity targets yet, but that may be because private companies’ valuations don’t fluctuate as stock prices do — so pre-IPO startups haven’t had to grant more shares. But she still sees a clear change.

The market has cooled way down.

Last year everyone was requesting out-of-band approvals, comp people were pulling their hair out because the survey data didn’t support what recruiters were seeing, and equity in particular was exploding out of control.

Now, offers are a lot less aggressive, and exceptions are mostly back to being exceptions.

Flight to lower-cost geos

When you think global companies you think large enterprise, but in 2023 more and more startups and high-growth tech companies are expanding their global footprint.

Why? Cost.

During COVID it was shifting from Bay Area / NYC HQs to dispersing across the US. But now cost-consciousness is driving a new focus on International hiring.

This is a big pain for global comp structures. Larger companies have the infrastructure to support complicated and localized rewards programs, but high-growth startups are trying to figure out one-size-fits-all, mostly on spreadsheets.

Add to that the cultural preferences too. For example, in India, it’s all about salary and promotions; companies focusing on bonuses and stock are going to struggle.

We haven’t seen concentration of hiring in any specific countries, although note that Latin America is a greater focus than it was five years ago.

Oh also — paying everyone across the US salaries at Bay Area levels?

Nope, not a trend.

But there’s more transparency in what happens to your pay if you move from San Francisco to Taos.

Pay transparency infrastructure

Many high-growth tech companies didn’t have pay ranges, and if they did, they weren’t done rigorously.

Now everyone needs them!

Pay transparency is pushing startups to mature their comp structures sooner. Many startups can’t even get to Level 1 (Bare Minimum) because they’re just figuring out ranges.

Cash bonuses might get fashionable

We’re both hearing growing discussion about using bonuses, but for different reasons.

In my conversations with comp leaders, they’ve noted growing employee skepticism of stock comp. Sagging share prices, repriced valuations, and unrealistic promises of 3x-ing make stock feel like a gamble that’s employer-favorable, not the wealth-creating vehicle sold. A bonus is still not as secure as guaranteed cash, but it feels more predictable, short-term, and attainable.

Stacey noted that some companies benchmarked base salary against total cash in order to attract top talent in lieu of a bonus program. This might have seemed like a good idea during high-flying times, but now they’re stuck with a higher fixed cost structure in a cash-constrained market. Transitioning to a bonus program could provide a more sustainable, albeit traditional, solution.

High-growth tech companies using cash bonuses? Strange thought.

But there’s a comp identity crisis for the mid-market in-betweens.

Are you still rocking options and below-market salaries and telling big growth stories like you did to the early employees? Or are you growing up, issuing a dividend, and adding a bonus and a 401k match.

Storm clouds ahead

We both hear a consensus that the markets are going to get worse before they get better.

Any contrarians out there think the worst is behind us?

---

Peer Group is a newsletter for comp leaders navigating the new era of pay transparency. If you want to share my newsletter, you can forward this email to your colleagues and fellow comp leaders.

Want more polls and insights about pay transparency?

Subscribe by hitting the button below.