With an extensive background in global HR and team leadership, Ryan Hammond, Head of Total Rewards at Datavant, has a seasoned track record in People Analytics, Compensation, HR Strategy, HR Technology, and Talent Management. His professional path has spanned the United States, Asia, and Europe. Ryan is at the forefront of applying data and scientific methods to address complex organizational issues and make employment more equitable, innovative, and efficient. Through this vision, Datavant aim to make work more engaging and fulfilling, advocating for the transformation of HR into a data-driven and evidence-based business function.
In advance of Nua Group’s LinkedIn Live event focusing on “Navigating Equity and Employee Rewards in Pre-IPO Companies”, we spoke with Ryan about the complexity of managing Equity Compensation in later-stage pre-IPO companies, employee perception and value of equity, and the future and innovation in compensation strategies.
Ryan, we are looking forward to discussing all things Equity Compensation with you at our LinkedIn Live event. You previously worked in People Research, Data Analytics, and Total Rewards at Nike and Airtable, to mention a few, and now Datavant. Can you please tell us about your background in Equity Compensation?
I had the unique privilege of being one of the final Master's students mentored by George Milkovich, the Martin P. Catherwood Professor in the Human Resources department at the School of Industrial and Labor Relations at Cornell University, whose textbook many compensation people may been subjected to. My Master's thesis was on the different stock option strategies as they were emerging in the late 90s and early 2000s. My journey in Compensation began in the pharmaceutical industry and Compensation, including Equity Compensation, has been a constant thread in my career. I co-founded Syndio, a company specializing in pay equity. Over the past few years, my focus has expanded to encompass Total Rewards roles. Presently, I am part of Datavant, a thriving pre-IPO company that is transforming the health data supply chain with a workforce of over 10,000, backed by private equity.
At Datavant, what are the challenges you are facing around Equity Compensation and how has the Equity Compensation strategy evolved over time?
Addressing the complexities of Equity Compensation presents unique challenges, especially being in the crucial late-stage, pre-IPO/exit phase like Datavant. In my six months here, I've observed a broad spectrum of understanding among employees regarding equity — ranging from those with profound insights, like former CFOs and tech company founders, to novices receiving equity for the first time in their careers. Communicating the nuances of equity, such as stock options, RSUs, ISOs, and NSOs, to such a diverse audience is a formidable task for Total Rewards leaders. It's easy for us to overlook the complexity because we deal with these concepts daily, but the challenge lies in ensuring that all employees, regardless of their financial acumen, comprehend their equity's value and implications. I think it is very easy to put communication and education at the bottom of our time and resourcing lists as a Total Rewards team.
Like most companies in recent years, we have seen significant swings in valuations. Equity programs are much easier to manage and communicate if you have a linear or exponentially-upward trajectory to an IPO or another liquidity event. To preserve the intended impact of our equity programs when the path is more complex is a real challenge for many companies and we are no exception.
The challenges in communicating equity get that much more complex and the need to do so becomes greater. Moreover, the design of equity programs must adapt to a non-linear path. This evolution involves critical decisions about grant types, vesting schedules, and the overall structure of equity offerings. It's a continuous process of design and realignment, ensuring that the programs meet the dynamic needs of the business and our diverse workforce.
What is your view of how employees value Equity Compensation? How has their opinion and perception of Equity Compensation changed in the current market, with a decrease in exits and pressure on valuations?
In my experience, two major things impact how employees value equity. First, the wide range of past experiences with equity significantly influences the perspectives an employee takes on Equity Compensation. Second, the employees' “personal portfolio” and the role their equity holdings play in it also varies greatly. The breadth of experience and portfolio among our employees means that their attitudes towards equity are equally diverse.
For example, consider a seasoned engineer with equity from several companies - their portfolio is diversified; some investments have paid off, some haven't, and others are pending. She may value her current equity as a high-risk/high-reward part of her portfolio and not think about it for core financial planning such as funding a child's education. Contrast this with an employee who joined the company early-stage and has no other equity from other companies. The value has increased tremendously but remains illiquid. They don’t have other equity to fall back on. For them, the value may be key to such goals as home ownership or maybe founding their own company. They haven’t experienced the ups and downs of equity ownership before. They will value and think about their equity completely differently. The hold equity has on these employees may vary dramatically. Does the second employee who may be holding early stock options understand the post-termination exercise window? Do they even know it exists?
Acknowledging this diversity is crucial. It requires careful planning to ensure that our equity programs are not only fair and equitable but well-understood, especially as leaders and managers need to make choices regarding refreshes or total rewards leaders design the more structured parts of our plans.
Considering the long-term prospects of Equity Compensation, will it retain its allure in the future, or is it conceivable that companies might innovate entirely new methods to remunerate and motivate their workforce?
Equity compensation is a dynamic and innovative field that some mistake for being very rigid and formulaic. When you look closely, a remarkable spectrum of strategies for equity compensation exists against the backdrop of a vibrant and continuously developing landscape. For example, recently as companies have either chosen to remain private for longer or market forces have dictated an unexpected timeline, many firms have had to change their equity plans to compensate and keep them aligned with their attraction, retention, and motivation purposes. Because we are competing in the market for talent, we all have to respond to changes in what others are doing in the market.
Do I think Equity Compensation as a whole is going to decline significantly? No, I believe Equity Compensation is here to stay. It has persisted across huge macroeconomic shifts and remains a cultural and economic cornerstone of our tech and other sectors. I do expect new forms of equity ownership to appear and equity program design to remain dynamic. Sharing equity ownership has been instrumental in fostering the tremendous wave of innovation since “the traitorous eight” founded Fairchild and made employee ownership a foundation of the semiconductor industry.
Honestly, I hope that it will gain even greater prominence within the broader economy. I am a big believer in “worker capitalism” more broadly as a meaningful way to better share the wealth of economic growth. It doesn’t just have to be for companies like Datavant. I advocate for inclusive compensation programs like profit sharing which enable workers to accumulate capital in alignment with the company's growth.
If I could wave a magic wand and make a single change to how our economy operates, it would be for all employees in every industry and every company to have some ownership stake in the company. My roots are from a family that ran furniture retail stores in Wyoming and had a strong commitment to profit sharing. We should be trying to do more of that everywhere.
What do you think is the biggest mistake that HR leaders make when they approach complicated equity issues?
The biggest mistake is under-investing in communication and education about how equity compensation works. HR professionals sometimes assume that employees with previous equity experience understand everything about it, which isn't always the case. It's surprising, but true, that there are still a large number of vested, in money and stock options that expire because people just simply don't claim them. They're literally missing out on free money, which shows there's a big gap in understanding.
To fix this, we need to do a better job of communicating. This means not just telling employees once about how equity works but teaching them repeatedly. Continuous communication is crucial. The more we talk about it and educate our teams, the more they'll see the true value of their equity and make the most of it.
To sum up, is your main piece of advice for HR leaders to focus on communication around Equity Compensation?
That, but also improving fairness and equity in stock awards which is another critical area requiring our attention. Though we've made significant strides in achieving gender and other forms of pay equity for salaries and bonuses, stock compensation still lags behind. Unlike other forms of compensation, I worry equity awards lag in effective systems to ensure fairness and transparency.
It's essential for HR leaders to scrutinize their equity compensation programs with the same rigor applied to cash pay. If we neglect this aspect, we risk perpetuating imbalances. We cannot complacently assume equity in stock awards mirrors the fairness achieved in other compensation areas. The distribution methods and controls surrounding equity are quite distinct, and this deserves special focus. It's not just about communication; it's also about conscientious analysis and proactive management to ensure true equity within our equity programs.
For those interested in delving deeper into the topic of pay equity and equity awards, I have co-authored a core academic article on gender pay equity and Equity Compensation in the Journal of Applied Psychology that looks at a broad set of data including detailed data from two tech companies (neither, to be clear, is Datavant). I think Total Rewards teams might find it helpful in how we approached the analysis.
In this interview, we are just scratching the surface of the Equity Compensation conversation. To learn more, join an in-depth discussion we will have on November 17 at 9:30 am PT with Ryan Hammond, as well as Marisa Peters, Chief People Office at VideoAmp, Gerry Murphy, Co-founder and Partner at Nua Group, and James Seechurn, Compensation Expert at Nua Group. Save your spot now.