We (Still) Don’t Negotiate Salaries – Here’s Exactly How We Make It Work.

We (Still) Don’t Negotiate Salaries – Here’s Exactly How We Make It Work.

Bhavin on November 22, 2019

Specific steps we’ve taken over the past five years to promote equal pay using a no-salary negotiation policy.

Nearly five years ago, I wrote about how we don’t negotiate salaries as a means of fostering fairness across our company and taking tangible steps to reduce wage gaps that are unfortunately inherent in the tech sector.

A quick Google search, however, will reveal that the dialogue is still centered around tips, tricks, and hacks for how candidates should approach salary negotiation, with few questioning how negotiation itself simply rewards the ability to negotiate (disproportionately favoring men and non-minorities) over fairly compensating the value of one’s skills and experience.

We still don’t negotiate salaries to this day, and our company culture continues to thrive in part because, and not in spite, of this stance. We’ve since twice been named one of the Best Places to Work in the Bay Area (2017, 2019) and, in a Q4 2018 CultureAmp survey of our employees, 100% of them agreed that they feel respected at Magoosh and that their wellbeing is generally cared for.

Although (to our knowledge) we remain one of a handful of tech companies who’ve adopted a no-negotiation policy on salary, we’re hopeful that founders who are passionate about growing strong and diverse startups will consider following suit. If you’re interested in learning more about the how of a no-negotiation policy, and the ways in which we’ve improved our framework to support our employees in receiving equal pay for equal work, you’ve come to the right place.

Putting a Fair Salary System in Place

Ideally, two people in the same role, with the same level of experience, should be paid equal amounts and evaluated by similar performance metrics. But this is sadly often not the case, especially for women.

As a first step in addressing the lack of fairness around salary, we created salary tracks (or ladders) for each department/function at Magoosh, including:

  • Marketing
  • Content
  • Academic Support
  • Product Support
  • Engineering
  • Product / Data / UX
  • Operations (HR / Recruiting / Business Ops)

We realize that many of the functions above could be split into more detailed functions, but to keep our process manageable and sustainable, we group similar functions together as long as our third party compensation data suggests that people within those roles are paid similarly at the same level. For example, we’ve found that Product, Data, and UX functions are paid similarly based on the most recent compensation data we received, but if that were to change, we’d separate those tracks.

For each job function, we have two salary tracks, one for Individual Contributors (IC) and one for Managers (M). Within each track are levels that correspond to role responsibility, scope, and title, and step increments between levels that indicate smaller advancements in professional growth. These tracks ensure that all IC1 Marketers get paid the same, all M3 Marketers get paid the same, and so on. Guidelines and examples about what constitutes an IC1 vs. IC2 vs. M1, along with the entire salary track, are shared with all employees by function, so they know the skills and experience they need to reach the next level, as well as how much they’ll get paid when they do level up.

Validating and Updating Salary Tracks Using Market Data

Once you have a salary system in place, how do you actually determine what constitutes fair pay for each role? Enter market data:

Every year (usually Q3), we use third-party data to determine market compensation for each level within a job function. We choose to use Radford and OptionImpact. We currently target a 65th pay percentile for companies of our stage, up from the 50th percentile a few years ago, and we may adjust that upward in the future. If the market rates increase for similar companies (based on geography, company stage, etc.), we provide salary increases to our employees.

In both 2017 and in 2018, every full-time employee received a market increase. On average, mid-level employees received a 20% increase solely from the market adjustments during this 2-year period (e.g. someone earning $100K in 2016 would receive $120K in 2018). In addition, employees may have received additional increases due to an increase scope and performance.

How to Set and Share Salary Levels Objectively for New Hires

For every job opening, we publish the salary range, so candidates can see not only the job description but also the compensation prior to applying. We also share our no-negotiation policy early in the hiring process, so candidates can opt-out if they choose.

When we initially draft a job posting, the hiring manager estimates the level of the role using the job description and our leveling guidelines. During this process, they sanity check the anticipated level for the new role with their manager and the HR team. We then include the pay of the surrounding levels as the salary range on all job descriptions (so for us, there’s also a method to creating the range).

For example, the job description for our currently open Senior Product Manager role includes a salary range of $150,500 – $168,500, depending on experience. On our salary track for individual contributors, this correlates to a level of IC3.3 – IC4.0, and the hiring manager’s target level for this role is IC3.7.

During the hiring process, we have several candidate assessments: an anonymized take-home assessment and one or two in-person assessments. We use those to help us determine (1) whether we should hire the candidate and (2) what initial level to set for the candidate.

We’ve worked hard to ensure our assessments are reliable and valid, but in full transparency, our assessments aren’t perfect, and we have unfortunately incorrectly leveled individuals. We can fix under-leveling issues relatively quickly because we re-assess levels every 6 months, but over-leveling is more problematic. In these situations, employees end up at a given level much longer than average. They can often feel that their growth has stagnated when, in reality, they were over-leveled to begin with but have been growing. This is something we’ll continue to work on.

How to Fairly Approach Salary Increases and Employee Promotions

Our HR team runs a committee-led leveling process every six months. During this process, a manager can advocate for a potential leveling increase for an employee. We know that some managers may be more aggressive about pursuing increases for their team while others less so. For that reason, our HR team periodically looks at the data to identify trends among teams and also encourages managers to bring up employees for leveling even if managers are unsure about the employee’s case.

The leveling committee always involves HR and will also involve managers or executive leadership, depending on the proposed levels being discussed. During those meetings, we don’t look at the time an employee’s spent at a given level but rather at their work output. We review past examples of others who leveled up, and our leveling guidelines, to help mitigate bias as much as possible.

Under our system, an increase in level corresponds to an increase in salary, but not necessarily a title or responsibility change (more on that below). It’s important to note that we don’t share or encourage anticipated “time to level up” for any of our roles, as growth is dependent on a number of individual and company factors that are impossible for us to predict.

Three More Benefits We Don’t Negotiate

At the risk of sounding like a scrooge of a founder, our no-negotiation policy extends to other compensation-related benefits as well. Some companies provide negotiation loopholes, leading candidates to think, “If I can’t negotiate on salary, then maybe I can negotiate on X.” We try to close those loopholes so that we can generally strive for fairness across our employee base.

Job titles are tied to levels within our salary tracks, so there’s no room for negotiation on titles. For example, all M4s have the title “Director,” no matter whether they work in marketing or engineering.

Equity is also non-negotiable. We use an equity formula based on job function and level. We then offer refresh and promotion grants once a year, so if an employee does level up, they can earn more equity.

PTO is already flexible, and you can read more about our processes to support that here. Items of note: employees take 4-5 weeks of PTO on average and HR helps managers flag employees who haven’t taken enough PTO.

In Defense of Fair Pay

Simply put, offering equal pay for equal work – and providing transparency around the process – is not a radical stance. As an employer, I believe that treating my employees (and by extension, my company) well includes compensating them fairly and without bias, and our stance on not negotiating salaries stems from this belief.

Equal and transparent pay supports your business bottom line by helping you attract and retain best-fit candidates. When hiring managers set and openly communicate fair salary tracks for new roles, it eliminates the need for competitive negotiation and levels the playing field, as candidates are paid on merit, not on their ability to negotiate.

We realize that a no-negotiation policy can turn some folks away, especially if they erroneously believe we won’t pay a fair wage as a result. We also know that some companies use no-negotiation policies to purposefully lowball candidates. Honestly, my previous thinking (when we were smaller and couldn’t afford to pay more) was that we didn’t want to compete on salary; we wanted employees to choose Magoosh mostly for our mission and learning opportunities.

While I still want candidates to be passionate about our mission and environment, I’ve realized pay and passion need not be mutually exclusive. We still use our no-negotiation policy as a way to maintain pay equity and support our Diversity, Equity, & Inclusion goals (by directly supporting those who are less likely to negotiate). But we also want to pay competitively and want employees to feel good about their compensation.

As a startup founder, I can also understand the many reservations around this approach and am happy to talk through concerns and questions – just drop a note in the comments below.

In the meantime, I continue to encourage other companies to reassess their approaches to salary and to consider alternative practices that could increase pay parity, and ultimately, employee satisfaction.

Tech companies, it’s time to stop treating equal pay for equal work as a luxury you can’t afford. Pay equity should be a starting point for your employees, not an aspiration.