Ellen Pao on How to Fix the Pay Gap: I Eliminated Salary Haggling at Reddit
Writing for The Hollywood Reporter, the digital powerhouse and former CEO of the web community shares how she set up fixed-compensation packages, no negotiation: "It was a whole lot better than telling someone asking for equal pay to stop complaining."
This story first appeared in the 2015 Women in Entertainment issue of The Hollywood Reporter magazine.
People tend to focus on the size of the gender pay gap when the real question is: How do we eliminate the gap? It's a much harder issue without a clear answer. Pay is a measure of value, and in many companies, women and minorities are not valued as highly as other employees — and often women don't negotiate for higher pay.
Jennifer Lawrence explained in an interview on ABC's Nightline that she developed a "habit of submissiveness" in pay negotiation to make herself more likable. She's right about the consequences of negotiating, according to a Harvard research study. People penalize women who negotiate for compensation (while rewarding men). And, probably for that reason, women negotiate their compensation much less frequently than men do (7 percent versus 57 percent).
And she's right, based on my firsthand experience. A few years ago, I asked for equal pay based on my experience level, on what I would have been paid externally for my work and on my contributions to the firm. No, I didn't need it, and, yes, I was already being paid a lot of money. My request was about being respected and valued for my work by being paid what I deserved. It was also about wanting to work at a firm that treated employees fairly.
When I spoke up to ask for equal pay based on my experience and market rates, my manager delivered what he called "blunt advice" in angry conversations and an angry email: "I strongly recommend you stop complaining about your compensation. Just drop it. … It clearly still bugs you, and that attitude of yours is a) no secret and b) damaging to your standing among [our firm's leaders]."
He successfully intimidated and shamed me into silence for a few more years — to the point where I said nothing even when I was denied any share of profits in our next fund while all the men working on the fund were allocated profit shares.
At Reddit, I was encouraged by CEO Yishan Wong's compensation philosophy. He advocated for fair pay by minimizing the amount of negotiation and setting compensation by role. When he left and I stepped in as interim CEO, I made no-negotiation, scale-based pay standard for all employees. We put the onus on the company to pay fairly instead of on candidates to negotiate fair pay. We decided fair was what a strong negotiator would get — market rates at the high end based on experience and role. We believed that paying high market rates and fair compensation across the whole company was key to hiring and retaining the best talent.
First we quantified fair pay: We mapped three sets of recent market compensation data against our current compensation, jobs and experience levels, and we increased our salary cap.
Then we did a reality check: We reviewed our payroll and realized that while we didn't see outliers based on race or gender, we did see some anomalies based on employees who were better at negotiating — and some hiring managers who were worse at it.
After that, when we made a candidate an offer, we mapped their experience and role to our new pay ranges. We created two offers — one with higher cash and one with higher equity. (Most people took the higher equity offer.) The process gave candidates some flexibility without changing the value of total compensation. For existing employees, at the end of the year we gave some raises and gave some bonuses to start correcting the anomalies.
I got two substantive pieces of feedback. One person bluntly rejected an opportunity for a job interview because he incorrectly assumed that our offers were low, targeting the lowest amount a candidate would accept. This aspect was hard for a lot of people to understand no matter how many ways we said it: We highballed everyone. Because we paid at the high end, everyone benefited from the process.
Second, after talking publicly about our policy, I heard concerns that no-negotiation pay takes away opportunities for less experienced or less likely negotiators, often women, to learn to negotiate. But it also takes away the known outcome of being penalized for negotiating and the known outcome of biased pay results. I wish I hadn't had to make a choice, but I opted to remove the risks over providing a limited learning opportunity.
A huge side benefit was that removing negotiating greatly reduced the emotional energy, conflict and duration of the hiring process. People no longer worried whether they were negotiating as hard as others or whether they could have gotten more in the process. We had some candidates agree to interviews with us just because of this process. And some candidates were pleasantly surprised by their offers, which built trust.
Will this system work for everyone? I don't know. It took hard work and someone caring about fairness for everyone in the company. At Reddit, standardizing a more informal small-scale no-negotiation practice was an improvement. It built more trust and fairness, resulted in some new candidates, led to faster, friendlier hiring, and lowered potential bias effects. I would definitely use it again. It was a lot better than doing nothing. And it was a whole lot better than telling someone asking for equal pay to stop complaining.
Read more essays from THR's Women in Entertainment issue: