You’ve probably seen them on billboards on highways and in your Instagram feeds: startups that promise to correct racial and gender inequality in terms of employee pay. But how much progress has actually been made? Are companies even aware that upcoming stock option grants could exacerbate the very problem they are supposed to fix?
Last week a top female executive at the well-known stock management platform Carta resigned for claiming hypocrisy in the company̵
Anyone who has worked closely with venture capital and technology in America knows that stock options are a crucial lever for attracting top talent, especially for companies with risky business models and low chances of success. However, the share remuneration received much less attention than the cash remuneration. In addition, this “wealth of paper” can be invaluable for women and colored people as the country tries to combat its shameful income inequality. If you’ve had the opportunity to work with Carta, you’ll also know that gender and racial inequalities in remuneration also exist for stock options, not just cash.
Carta needs to act quickly to implement a new feature across the platform: a warning to founders and legal administrators that upcoming option grants will result in gender and racial inequalities compared to the rest of the company’s employees doing similar work. With the “equal work, equal pay” bid, Carta has the unique opportunity to use its almost informative monopoly to improve “inequality of justice” and to keep promises that have not been kept. This function ensures internal parity: women and colored people are compensated by equity grants at eye level with white and / or male colleagues who do the same work in similar positions.
After entering an equity reward in Carta myself as a startup attorney, there was no way I could have known if new grants were fair across the entire capitalization table unless Carta sent a warning or the company distributed its own report. The sad reality is that it is far too difficult to do this review on your own. Carta can because it is a stock compensation clearing house used by more than 14,000 companies in the market and has unique access to the tools and information required to determine if a company deviates from its stated values .
Wouldn’t it be helpful if Carta informed a client’s management team and lawyers that new grants would not result in gender equality while they still had the ability to adjust the numbers before the board grants? According to Carta’s own study on the gender gap in 2019, which was published after a review of a sample of the capitalization tables of its own users, male founders accounted for 6.5% of the shareholders, but held 64% of the total equity. At the employee level, female employees have 49 cents of equity for every dollar that men own. If companies had a positive understanding of the severity of their actions, the state of paper wealth in the United States would be far more just and inclusive.
I would imagine that companies that are concerned with social justice would like to make adjustments to share allocations if it were easiest and not retroactive. Once options have been granted by the board of directors, it becomes an administrative effort to repeat them. Yes, many companies then conduct internal audits to uncover inequalities. However, it is usually too late or too time-consuming to turn all of these employees into a complete company, some of which may have already left. Let us not forget that startups in general cannot even grant options to people who no longer provide services for their company. A proactive, preventive approach is not only sensible, but also necessary. Carta is well positioned to make up for its broken promises by urging users to get it right the first time.
Keep in mind that later stage companies have the money to do a full analysis of stock compensation, but early stage companies often don’t. It is emerging that inequalities are the easiest and cheapest to tackle, especially for the promising early-stage unicorns that Carta spends so much time getting involved in its successful startup program – one that offers discounted services to startups to hold when they grow. Lawyers, board members, startup operators – the hell, even the youngest employees – needn’t be afraid to use Carta as a tool to bring these issues to light.
I want to believe that companies that promise racial and gender equality in compensation make this possible, but not all. Some don’t care. However, others are only overloaded with pitch decks, slack notifications, and the immense expectations of investors looking for high returns. It’s not an excuse, it’s just a reality. What difference would it make if Carta informed management about the problem before it was too common to fix it.