Pay Equity Best Practices: A Guide for Startup CEOs

We’d like to believe that no one intends  to pay women less. Or sets out to cement a gender pay so wide it remains in place for 15 years. But leaders who have the power to narrow the gap are often blind to roadblocks that prevent companies from taking real action toward pay equity. This helps keep women’s earnings at $0.82 for every $1 earned by men. 

Startup CEOs are in an ideal position to create businesses rooted in fairness and equal pay. Pay equity can be easier to operationalize when companies are young, have fewer employees and lack the red tape and fixed cultures of larger, established companies. 

The CEO’s pay equity paradox 

Fortunately, Open Comp’s recent survey of 500 high-growth executives revealed that 78% of CEOs believe pay equity is important, and 73% of CEOs say pay equity influences recruiting and keeping the best talent. 

While those good intentions are vital, there’s a paradox that blocks progress: CEOs aren’t aware that most teams (61%) lack adequate resources to address pay equity. Simply put: All talk, no action. 

To lead radical change, CEOs must take charge, set priorities, provide tools and steer where the money goes. 

Success means establishing a culture of fair pay that uplifts individuals, families and generations, and builds stronger businesses. Inclusive businesses are 70% more likely to capture new markets and outperform competitors by 35%. They also experience 87% less attrition, which directly impacts cash runway and option dilution. 

For CEOs determined to overturn the status quo, here are best practices that help narrow the pay gap. We’ve also included advice shared during our pay equity webinar with Caitlin Allen, OpenComp’s Vice President of Marketing; Tamar Blue, CEO of Mental Happy, and Sarah Rigsbee, CFO of Farmer’s Fridge.

Best practice #1: Share pay ranges 

Sharing pay ranges in job postings (41%) and job interviews (36%) topped the list of best practices in our survey. Pay ranges are key to transparency because they allow you to share comp without divulging individual salaries. And increasingly, states like California and Colorado are passing laws that require companies to make pay ranges public. 

Transparency is a way to win talent in a competitive market where workers are sharing salaries on Twitter and shared public spreadsheets.

Here’s an example of how to share a pay range with a job candidate: For a marketing manager with five to seven years of experience, we pay between $100,000 to $120,000 based upon San Francisco benchmarks, regardless of where someone lives. 

It’s important to note that pay ranges only work when they’re based on fresh, reliable and relevant data. Without the right data, pay ranges are just numbers. 

Pay ranges only work when they’re based on fresh, reliable and relevant data. Without the right data, pay ranges are just numbers. 

Best practice #2: Document and communicate the criteria for bonuses, promotions and benefits with employees

Fair pay goes beyond the initial offer. Documenting and communicating criteria for rewards and promotions is a best practice for 31% of our survey respondents. 

Documented processes and criteria give your managers and other decision-makers an objective framework for pay. And employees get a clear picture of how they could progress through a company, allowing them to make better career decisions. 

Best practice #3: Don’t ask candidates for salary history

Avoid building on the mistakes of past employers. When you base comp on someone’s previous salary, you risk continuing unfair pay practices. That leaves individuals — especially women and minorities — perpetually underpaid. 

[callout] For women, this wage gap could mean up to $2 million in lost wages over a lifetime. 

Instead, craft an offer based on relevant market data and your compensation philosophy. The onus is on employers to offer fair pay. 

Best practice #4: Conduct pay audits to spot pay gaps

You can’t fix pay gaps if you don’t know where they exist and to what extent. Periodically assess pay equity at your company to reveal what’s working and what changes you need to lead.

If there are gaps, can you determine the causes? Were they discriminatory or due to lack of planning or strategy?

Implementing pay audits is related to one of the most common roadblock to pay equity: leadership buy-in. In a SHRM study, nearly half of HR managers surveyed said their organizations don’t conduct pay equity reviews because it’s not a priority for senior leadership. 

This study also revealed that only 35% of organizations provide training on how to properly document pay decisions. This is noteworthy considering another common roadblock is “insufficient knowledge “ for teams. 

Best practice #5: Proactively budget to correct for pay discrepancies

How do you close the gaps that the audits reveal? If you spot pay gaps and do nothing to fix them, you could get in hot water with employees, the law and the media. You have to budget for pay equity. 

Best practice #6: Have informal internal discussions

Extend comp conversations beyond the hiring process and annual reviews. Ongoing discussions about pay are core to a culture of trust. Here are the pillars of meaningful compensation conversations:

• Consistency: This is key in compensation. Make sure everyone receives the same message and understands how compensation is handled across the board.
• Transparency and education: These two pillars go hand-in-hand, because information without context is meaningless. Don’t just share comp information, help people understand what it means for them.
• Open door policy: Executives, managers and employees should feel comfortable and empowered to talk to each other about compensation whenever a need or question comes up.

There will never be a perfect time to start. Start now. 

It can be tempting to wait until you have more employees, more time, or a bigger budget to implement processes or make sweeping changes. Here's the reality: That time may never come. 

It may even be easier to implement pay equity processes when you have fewer employees. Start today, phase things in and the results will compound. Here’s an easy step you can implement immediately: Stop asking job candidates for their salary history.

Maybe you can’t compete with every company, especially larger, established ones with practically unlimited budgets, but you can demonstrate that pay equity is a priority. If you combine fair market pay with a mission to prevent pay gaps, you’re on the path to establishing a fair and equitable company culture — and winning employees who seek to join one.  

Want to learn more about how CEOs can take charge of pay equity

• Download our report, The State of Startup’s Pay Equity in 2022. 
• Watch our on-demand webinar on pay equity. 

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Caitlin Allen is VP Marketing at OpenComp and has served in similar roles at Happy Returns, Lyft, and Andreessen Horowitz. She also writes about topics including marketing, sales compensation, and happiness. Connect with her on LinkedIn here.