Compensation at most companies is a hot mess. It’s weird, confusing, and can be unintentionally (or sometimes intentionally) biased. You’ve likely felt the effects of this problem as a candidate. It’s hard to know what to ask for, how to ask for it, or if your offer is fair. At Gatsby, we think this whole situation should be changed, so we approach compensation a different way.
Gatsby’s total compensation has been designed so we can recruit, retain, and reward talented people who produce measurable results. To do this, we both pay and grant equity well above average for each role in comparison to similar tech companies.
Gatsby also believes in equitable pay, which is why we have implemented a standardized salary model based on five variables. This formula removes extraneous factors that have historically disproportionately impacted underrepresented groups.
In this post, we’ll share a simple explanation of the total compensation formula we use for most roles, which includes both salary and equity. We hope that sharing our approach to compensation can both 1) ensure potential candidates that we’re committed to fair pay and 2) help other companies who are currently navigating this space.
Our salary formula
Our salary formula is based on five factors: job type, level, step, locale, and employment type. That’s a lot of stuff, so we’ll break it down.
💼 Job Type: Job type is defined as the category of role the person is filling. There are lots of types, but some examples are Brand Marketing, Product Design, or Recruiting.
📈 Level: Level is defined by the competencies and scope of work expected of the individual in the job type. Confused? Check out our Engineering Level Guide as an example. The hiring team evaluates what level (and step – see below) a candidate is throughout the interview process via deep dives, technical evaluations, and a paid project. The vast majority of the time we’ve accurately assessed both level and step, but we have gotten it wrong a couple times after seeing the person’s work product during the first few weeks. In these cases, we quickly releveled and increased the person’s pay.
👣 Step: Step is defined as how an individual performs at their level. We have three steps: performing in the role (step 1), excelling in the role (step 2), and thriving in the role (step 3). Most people will start at step 1, but if we believe someone is closer to the next level up, they may start on step 2 or 3.
🌍 Locale: Locale is defined as the location in which the individual works. We group locations into tiers based upon the cost of labor. Cost of labor is the going rate for work, and is often affected by the cost of living. Wondering why this is a factor? Check out the FAQ section at the bottom of this article.
📝 Employment Type: Employment type is defined by the individual’s employment status. This is usually either “employee” or “contractor.” Employee status is given where Gatsby has a legal entity. There are many differences between these two classifications, but the most frequently cited is that contractors do not get certain benefits, like health care and 401k. (Although at Gatsby contractors still get many benefits and perks like equity, phone and wifi reimbursements, learning and development stipend, etc). Because of this, contractors get an extra $15,000 added to their salary to cover these expenses.
How we calculate salaries
We begin determining someone’s salary by looking at industry data to find the benchmark amount for their job type and level. Specifically, we look at market data for San Francisco to determine what is the 75th-80th percentile pay for the job type and level. We selected San Francisco because it represents the locale with the highest cost of labor and has a significant data set.
Once we determine the benchmark for someone’s job type and level, we adjust it slightly based upon what step we believe someone is. As someone’s step increases, so does their pay. The amount it increases varies by job type and level, but is fixed. These changes are small and incremental, but allow us to give raises for strong performers if they are exceeding expectations, but not yet ready for a promotion.
After we’ve benchmarked for job type, level, and step, we adjust the amount based upon the cost of labor in someone’s locale. We do this by multiplying our current number by their locale multiplier. We determine the multiple based upon how the market in a specific city or country pays its workers. For example, San Francisco has a multiplier of 1 because it is one of the highest paying locations in the world. Frankfurt has a multiplier of 0.75 because it is a high-paying location, but not quite as high as San Francisco. We determine these multipliers by examining the cost of labor data that Carta and other compensation benchmarking tools provide.
The very last adjustment we make is based upon the employment type of the person. This is usually either “employee” or “contractor.” Since contractors don’t receive benefits, we add an extra 10% added to their salary.
Examples
Example 1: Reggie 🧑🏽🦱
The Gatsby team is ready to give Reggie an offer. The details of the job are below:
- Job Type: People Operations
- Job Level: Specialist II (Level 3)
- Step: 2
- Location: Blue Springs, Missouri, USA
- Employment Type: Employee
Here’s how we’d figure out Reggie’s salary.
- First, we’d look at our compensation data to find the benchmark for a Specialist II (level) People Operations (job type) in San Francisco. Our compensation data tells us that the benchmark is $100,000.
- We’d adjust this benchmark based on Reggie’s step. Because Reggie is a step 2, their benchmark is adjusted up to $105,000.
- We’d then take into account Reggie’s location. Reggie is in Blue Springs, Missouri. The multiplier for that locale is 0.8, so we would multiply 105,000 x 0.8. This gives us 84,000.
- Finally, we’d consider the employment type. Because Reggie would be an employee, their compensation would be multiplied by 1. 84,000 x 1 = 84,000.
- Reggie would be offered $84,000.
Example 2: Fatima 👩🏿🦱
The Gatsby team is ready to give Fatima an offer. The details of the job are below:
- Job Type: Developer Relations Engineer
- Job Level: Senior (Level 4)
- Step: 1
- Location: N’Djamena, Chad
- Employment Type: Contractor
Here’s how we’d figure out Fatima’s salary.
- First, we’d look at our compensation data to find the benchmark for a Senior (level) Developer Relations Engineer (job type) in San Francisco. Our compensation data tells us that the benchmark is $149,000.
- We’d adjust this benchmark based on Fatima’s step. Because Fatima is a step 1, her benchmark remains at $149,000.
- We’d then take into account Fatima’s location. Fatima is in N’Djamena, Chad. The multiplier for that locale is 0.6, so we would multiply 149,000 x 0.6. This gives us 89,400.
- Finally, we’d consider the employment type. Because Fatima would be a contractor, her compensation would be multiplied by 1.1. 89,400 x 1.1 = 98,340.
- Fatima would be offered $98,340.
Our equity formula
All new full-time hires will receive an equity grant in the form of stock options based on a standard formula. This formula is similar to our salary formula because we use Carta to determine what the 75th-80th percentile grant would be at a similar company for a given job type and level. Unlike how we calculate salary, a person’s step, locale, and employment type do not affect the amount given. This makes figuring out equity for candidates easy – very nice!
Equity is very confusing, so if you want to learn about it, we recommend the following articles.
- Gatsby’s blog post on understanding Stock Options
- EquityBee’s Guide to Stock Options
- Smart Asset’s Understand Stock Options
How we calculate equity
This gets to be a short paragraph. Job type + level = equity.
Examples
Let’s take a look back at one of the folks from earlier and see this bad boy formula in practice.
Example 1: Reggie 🧑🏽🦱
The Gatsby team is ready to give Reggie an offer. The details of the job are below:
- Job Type: People Operations
- Job Level: Specialist II (Level 3)
- Step: 2
- Location: Blue Springs, Missouri, USA
- Employment Type: Employee
Here’s how we’d figure out Reggie’s equity.
- Reggie is a People Operations Specialist II.
- Our data tells us a People Operations Specialist II should receive 4,000 options
- Reggie’s step, locale, and employment type don’t affect this amount.
- We offer Reggie 4,000 stock options.
Example 2: Fatima 👩🏿🦱
The Gatsby team is ready to give Fatima an offer. The details of the job are below:
- Job Type: Developer Relations Engineer
- Job Level: Senior (Level 4)
- Step: 1
- Location: N’Djamena, Chad
- Employment Type: Contractor
Here’s how we’d figure out Fatima’s equity.
- Fatima is a Senior Developer Relations Engineer
- Our data tells us a Senior Developer Relations Engineer should receive 10,000 stock options.
- Fatima’s step, locale, and employment type don’t affect this amount.
- We offer Fatima 10,000 stock options.
Summary
Because this article was long, here are the two main takeaways you should have gotten from this post if you only skimmed:
- Gatsby believes in a standardized compensation model (both salary and equity) because it promotes equity and reduces confusion for our people.
- If you get an offer for a role at Gatsby today, we will make sure you know your compensation is competitive and fair.
Message from the author
I’m Maddie, VP of Operations at Gatsby and I lead our efforts on compensation 👋🏼. It’s something I care about a lot and it’s also something I didn’t used to understand. When I first joined the working world, I just wanted a job. I didn’t ask questions about salary. I didn’t look at market data. Looking back, I know I was underpaid. A lot has changed since then. I joined Gatsby (woohoo), learned to negotiate (unfortunately), researched different compensation methods (some good, some not so good), adopted a dog (irrelevant but dope), and got the opportunity to redesign Gatsby’s compensation model at the beginning of 2021. Overhauling Gatsby’s compensation model is one of the most rewarding projects I’ve ever taken on because I got to design a system that was good for the company and its people.
I hope this post is helpful to someone, whether it be another company deciding how to structure their compensation, or a potential employee who wants to know they are being fairly paid.
Gatsby Compensation FAQs
- Why does Gatsby do locale-based pay?
- This is a hot topic and there are pros and cons of locale-based pay and universal pay. Here’s why we chose locale-based.
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- Team members in high-wage regions would have much less discretionary income than ones in low-wage countries with the same role.
- If we start paying everyone the highest wage our compensation costs would increase, we wouldn’t be able to hire as many folks as we need to help make our product amazing.
- If we start paying everyone the lowest wage, we would not be able to attract and retain people in high-wage regions, and we want the largest pool to recruit from as practical.
- A concentration of team members would occur in low-wage regions, since it is more beneficial for them, and we want a geographically diverse team.
- Team members in low-wage regions being in golden handcuffs and sticking around because of compensation even when they are unhappy. We believe that it is healthy for both employees and the company, when people who are unhappy find another company where they feel fulfilled.
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- I’m applying for a job—is it weird to ask the interviewer what my compensation would be?
- Not weird at all! We encourage you to ask if we forget to bring it up. We believe in transparency and are happy to share.
- How do I know if my employment type is a contractor or employee?
- It depends on a few factors—primarily where you are located. We suggest asking our recruiting team!
- What happens to my salary if I move?
- We will adjust your salary if the place you are moving to has a higher or lower locale multiplier or if your employment type changes.
- Which currency does Gatsby pay in?
- We currently pay in USD unless you are an employee through our Professional Employment Organization (PEO), in which case we pay in local currency. This isn’t something most people have experience with, so ask our recruiting team if you aren’t sure if this applies to you!
- What are the downsides of doing such standardized compensation?
- Because we use a strict formula, we have less negotiation power (aka “wiggle room”) than other companies. This is a tradeoff we knowingly made because equitable pay felt more important.