{"id":1520,"date":"2019-06-19T00:00:00","date_gmt":"2019-06-19T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/equity-leveling\/"},"modified":"2021-03-05T06:57:40","modified_gmt":"2021-03-05T06:57:40","slug":"equity-leveling","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/equity-leveling\/","title":{"rendered":"Closing the gender gap in equity: How to fix historical errors in equity distribution"},"content":{"rendered":"\r\n

Last fall, we partnered with the investment collective #Angels on a report about the gender gap in equity compensation<\/a>, or \u201cThe Gap Table.\u201d We found that female employees own just 47 cents in equity for every $1 that male employees own.<\/p>\r\n\r\n\r\n\r\n

Our CEO, Henry, leads with a core belief in fairness<\/a>, and while we worked on The Gap Table he worried that we had relied too much on gut decisions when issuing equity to employees in the past. So my team and I set out to reevaluate the equity we\u2019d issued and build a fairer, more data-driven process.<\/p>\r\n\r\n\r\n\r\n

To get started, I reviewed how companies and investors I admire think about this problem, from Salesforce and my former employer, Google, to Mark Suster<\/a>. While this process began as a project to remove gender bias from our historical equity distributions, it ended up creating a fairer system for everyone. In the end, we asked for and received a total of 7.25% of fully diluted shares to be added to the employee option pool<\/strong>. Although it\u2019s an ongoing process and we\u2019re still learning, we want to help other companies address their historical equity imbalances too.<\/p>\r\n\r\n\r\n\r\n

<\/a><\/p>\r\n\r\n\r\n\r\n

Here\u2019s how we did it\u2014and what we learned in the process. For an example of how to do this at your company, download our template.

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Download the equity leveling template<\/h3>\r\n

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How we did it<\/h2>\r\n\r\n\r\n\r\n

Defining roles and establishing levels<\/h3>\r\n\r\n\r\n\r\n

First, we worked to define everyone\u2019s job at Carta and established levels for each job family company-wide. This is an evolving exercise that is still imperfect and a work in progress, but it\u2019s a vital foundational step. Creating a standard set of levels helped us compare each employee\u2019s equity compensation against the appropriate peer group using external market data.<\/p>\r\n\r\n\r\n\r\n

To guide our thinking, we licensed benchmark data from a third party, which wasn\u2019t a perfect fit for our circumstances, but gave us a place to start. This data informed our own standard set of levels for each team at Carta.<\/p>\r\n\r\n\r\n\r\n

Determining a target equity allocation for each level<\/h3>\r\n\r\n\r\n\r\n

Using the tailored leveling plan for Carta, we looked at market rates for equity compensation by level and created targets for each level at Carta. You can see an example table outlining all of these elements below. Our equity guidelines will vary based on our valuation and the current strike price. We intend to revisit these guidelines whenever there is a material change.

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We decided to target the 50th percentile for equity for each level, including the most senior roles at Carta. The 50th percentile might not be right for every company. For us, this made sense when we factored in our company stage the size of our option pool, and\u2014most importantly\u2014our trajectory and the projected value of our equity.<\/p>\r\n\r\n\r\n\r\n

As a company focused on creating more owners, we\u2019re proud to grant equity to all full-time employees. That said, this benchmark ensures our option pool has enough shares for yet-to-be-hired employees and to reward our top performers with refresh grants. Startups often have trouble striking this balance\u2014the 50th percentile is our pragmatic solution. The most important thing here is to select a percentile and apply it consistently.<\/p>\r\n\r\n\r\n\r\n

Calibrating employees to each level, and against the market<\/h3>\r\n\r\n\r\n\r\n

Next, we worked with our leaders to calibrate each employee to the levels we established. Then we evaluated our levels against the external market.<\/p>\r\n\r\n\r\n\r\n

This step required more effort than one might expect. Some types of jobs (such as those in engineering) track closely to market trends, but others\u2014for example, the fund accounting team at Carta\u2014take on more responsibility and volume than they would in a similar job elsewhere. We took these factors into account when assigning levels.<\/p>\r\n\r\n\r\n\r\n

Evaluating current equity compensation against new targets<\/h3>\r\n\r\n\r\n\r\n

Comparing equity is more challenging than comparing base salaries because you have to account for the company\u2019s changing valuation over time. Five shares granted during a company\u2019s Series A reflect more value than five shares granted during its Series C.<\/p>\r\n\r\n\r\n\r\n

To evaluate whether or not equity grants had hit the benchmark within a given level, we compared the dollar value of each employee’s total equity holdings against what we’d offer a prospective employee in that role at our present-day company valuation. We used this data to create a matrix showing an employee\u2019s level in one column and the preferred share price of what we would offer a new hire on the other. Here\u2019s an example of how this might look:

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Extending fix-it grants to employees who need them<\/h3>\r\n\r\n\r\n\r\n

At this point, we confirmed Henry\u2019s suspicions that we didn\u2019t consistently distribute equity in a data-driven way in the past. We had gotten this right for most, but not all, of our employees. So we gave fix-it grants to the employees who were below the 50th percentile in equity compensation. 40% of the women at Carta received an equity fix, compared to 32% of the men; overall, this affected about 35% of the company<\/strong>. While we can\u2019t go back and change how we initially granted equity, we can work to close the gender gap in equity-based compensation now and in the future.<\/p>\r\n\r\n\r\n\r\n

We didn\u2019t take any shares away from employees as part of this process. When we issue refresh grants in the future, we will take into account whether employees are already above the 50th percentile for their level.<\/p>\r\n\r\n\r\n\r\n

Here\u2019s what employee equity distribution at Carta looked like before and after the leveling:<\/p>\r\n\r\n\r\n\r\n

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Communicating findings and planning next steps<\/h3>\r\n\r\n\r\n\r\n

Our CEO Henry Ward announced the findings in an all-hands presentation. He explained how we\u2019d distribute fix-it grants and laid out our plan for the future. The team\u2019s response was overwhelmingly positive.<\/p>\r\n\r\n\r\n\r\n

Now that we have consistent levels and benchmarks across the team, we\u2019re focused on ongoing maintenance for top performers, future hires, and internal promotions. We will reevaluate everyone\u2019s compensation regularly\u2014accounting for gender bias, negotiations, and other factors\u2014to make sure we have internal parity among peers.<\/p>\r\n\r\n\r\n\r\n

What we learned<\/h2>\r\n\r\n\r\n\r\n

Here are the biggest things we learned during this process:<\/p>\r\n\r\n\r\n\r\n