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Why Move Toward Total Compensation?

Traditionally, salary and equity have been treated as separate elements. Today, employees increasingly evaluate offers and rewards in terms of total value: base pay, variable pay, and long-term equity combined.

A holistic approach enables companies to:

  • Benchmark competitively: Compare apples-to-apples across peers, even when others lean heavier on cash or equity.
  • Drive alignment: Ensure salary, bonus, and equity incentives work together to reinforce company goals.
  • Enhance transparency: Help employees understand their “real” value — not just paycheck vs. potential upside.
  • Support retention: Balance short-term stability (salary) with long-term engagement (equity).

Key Principles for a Holistic Compensation Philosophy

1. Market Alignment

  • Benchmark using Total Target Compensation (TTC) or Total Direct Compensation (TDC) = Base + Short-Term Incentive + Long-Term Incentive (annualized).

  • Choose your market positioning:
    • 50th percentile: at market
    • 60–75th percentile: above market / competitive
    • 90th percentile: leading market (typically only sustainable for market leaders or emerging spaces like AI).

  • Caution: targeting the 90th %tile often leads to “chasing your own tail,” since you become the market setter. This requires strong internal controls (e.g., tracking acceptance rates, burn, and offer ratios).

2. Flexibility by Role & Level

  • Calibrate TDC mix based on role competitiveness:

    • Technical or executive roles → more equity weighting.
      Early-career or non-technical roles → higher cash stability.

  • Use guardrails to ensure fairness:

    • Aim for a set percentage of employees within ±10% of target.
    • Track offer acceptance rates by role and level.

3. Communication & Transparency

“You cannot value what you cannot measure.” Employees need clarity to trust the system.

  • Educate broadly on philosophy, and deeply on mechanics:

    • Show total package value, including current equity worth.
    • Explain vesting, strike price, dilution.
    • Outline formulas for promotions, merit increases, bonus proration.
      • At Google we published our merit matrixes, rounding rules, etc.
      • If it was algorithmic, it was public.

  • Keep some details internal:

    • Exact market targets (since sources and timing vary).
    • Individual peer pay or performance outcomes.
    • Full pay ranges (unless you have strong ops to support range max transparency).

4. Sustainability & Budgeting

  • Recognize that TDC may diverge from pure salary trends.
    • E.g., inflation pushes salary up, while market downturn reduces equity value.

  • Model long-term costs of equity grants under different growth scenarios.
  • Ensure your approach scales as headcount grows.

Practical Steps to Implement

Audit Current Practices

  • Assess how you currently benchmark salary and equity.
  • Combine them to calculate your actual TDC.
  • Compare to market percentiles to see where you stand.
  • Compare components (salary vs. LTI) to identify imbalance risks.
  • Remember: summing 50th %tile salary + STI + LTI ≠ 50th %tile TDC, because survey data aggregates components separately.

Define Your Philosophy

  • Evaluate your current market position and offer outcomes.

    • What’s your offer acceptance rate by role and level?
      • 60% was considered “good” at Google
    • Are declines due to pay mix (e.g., lack of bonus) or level?

  • Use this to set a target position (e.g., “We target the 65th percentile of TTC for all roles, leaning on equity at leadership levels”).

  • Define what each element is for:

    • Salary = pay for today’s work.
    • Bonus = recognition for past performance.
    • Equity = investment in future impact.

Run Scenarios

  • Use benchmark data to compare your mix vs. market.
  • Model alternative structures (cash-heavy vs. equity-heavy).
  • Build hypothetical offers to see budget impact.
  • Ask: does this reallocate budget toward business-critical groups?

Update Tools & Processes

  • Use a comp management platform (like Pequity) to model salary + equity together.
  • Upload new ranges, model scenarios, and generate total compensation statements for clarity.

Educate Managers & Employees

  • Train managers to explain TTC consistently, anchored in your philosophy.
  • Provide talk tracks, guides, and FAQs.
  • Teach employees to value equity realistically (vesting, dilution, long-term growth).

Suggested Resources

  • Tools & Platforms: Pequity, OpenComp, Carta Total Comp.
  • Survey Providers: Radford, Mercer, OptionImpact.
  • Reading:

    • Competing for Talent in the 21st Century (Harvard Business Review)
    • First Round Review articles on equity and comp strategy

 

Takeaway

By shifting to a total compensation philosophy, companies signal fairness, competitiveness, and alignment with employee expectations. The goal isn’t just to rebalance salary vs. equity — it’s to build a sustainable framework that grows with your company and resonates with talent.