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Women in Silicon Valley Face a Massive Equity Gap

(Bloomberg Businessweek) -- The young woman was excited to get an offer at Lyft Inc., one of Silicon Valley’s biggest venture-backed private companies, until she compared notes with one of her friends. He’d received about the same salary for the same software engineering job she’d been offered at the same experience level, but he got twice as many company stock options. When the young woman asked for additional equity, her recruiter said the offer was standard and non-negotiable, so she took the job. A few months in, she asked some colleagues hired at the same level about their options grants, and all of the dozen or so men she surveyed had double her equity, too. When she asked her manager for an increase, she quickly got it.

“I felt really undervalued,” says the woman, who spoke on condition of anonymity for fear of reprisal. “I felt this sense of injustice and frustration. Although I didn’t have the information I needed to get this number changed, someone else did, and someone should have raised a red flag.” Lyft spokesman Adrian Durbin said in a statement that the company is committed to equal pay and urges employees to voice concerns. “Though rare, when unintended pay discrepancies are identified, we address and correct them,” he said.

In Silicon Valley, the salaries are high, and equity in a risky startup most often ends up worth zero. But when a startup goes public or gets bought, that equity can end up being worth way more than all the biweekly paychecks. The big successes mint a new class of angel investors and startup founders, along with the occasional billionaire. And according to a new study, the employee and founder stock that can make tech workers silly rich is disproportionately concentrated among men. In July, equity management platform Carta crunched data from almost 180,000 employees at more than 6,000 companies. The findings, released on Sept. 18: Women hold only 47¢ for every dollar of equity men do.

It’s not simply that there are more men than women working at and founding these companies. Women make up 35 percent of equity-holding employees, but hold only 20 percent of the employee equity, the Carta survey found. Women are 13 percent of founders but hold 6 percent of founder equity. (The 47¢ figure does not, however, control for employees’ positions.)

That women are underrepresented and underpaid is a well-established phenomenon across the highest-paying industries, including technology. But the gender pay gap—that women make, on average, 80¢ for every dollar a man does—is dwarfed by the potential wealth gap that can be created by stock options. “When you factor in stock, your compensation can double or triple,” says Jackie Luo, a 23-year-old software engineer at Square who encourages tech workers to message her their compensation details and posts them anonymously on Twitter. “It makes a huge difference. Most of the people I know who have purchased homes have done it by selling their stock.”

The disparity results from a host of interconnected factors. Startups’ first employees often get much more equity than those who join later, and younger companies tend to have smaller proportions of women. The Carta study found that, on average, women make up 43 percent of employees at companies with more than 400 people, but only 29 percent of employees at companies with 10 people or fewer. Most startup founders are male; female founders, who tend to hire more women, are a lot less likely to get funding. Only 2.2 percent of venture funding in 2017 went to female founding teams. So women may need to sell higher amounts of equity to raise the money they need, which further dilutes their ownership of the company.

The study was prompted by a blog post in March from the #Angels, a group of six women who took on angel investing as a sideline after meeting at Twitter Inc. (Only one is still at Twitter.) As they invested in companies, they got the sense that the real power—the kinds of paydays that enable recipients to start companies, invest in others, or take a more active interest in politics—were disproportionately going to men. Now, they have the data to prove it. “This isn’t just about wealth creation,” says Chloe Sladden, the #Angel who used to oversee Twitter’s media partnerships. “This is about the ability to influence Silicon Valley, the products, and the people who, more and more, are shaping the world.”

Sladden, one of Twitter’s first 40 employees, knows firsthand the power of a good equity package. She negotiated a strong one, she says, using knowledge from business school, her experience as a management consultant, and the guidance of mentors, who helped her ask the right questions. “That has now changed my life and allowed me to think about what companies I want to fund and what Silicon Valley I want to live in,” she says.

Freada Kapor Klein, a partner and diversity advocate at Kapor Capital, says she’s intrigued by the study but eager for a look at how equity is skewed across race and other categories, not just gender. “If we’re talking about equity, we have to ask, ‘Who can afford to forgo salary and maximize equity?’ ” she says. Carta’s chief executive officer, Henry Ward, says the plan is to keep gathering data to do further analysis.

Equity adds another layer of opacity to the salary negotiation process. “It’s information asymmetry squared,” says Mary Russell, a lawyer in Palo Alto, Calif., who helps workers negotiate compensation. “You have to have the confidence to put the responsibility on the company to give you enough information.” Equity varies much more widely than salaries, including when additional grants of stock are used as bonuses. And on the other hand, companies often try to get away with offering a prospective hire the kind of equity package meant for a much lower position, Russell says.

A system that puts the onus on the individual to ask can disproportionately hurt women. A recent study found, counter to conventional wisdom, that women ask for raises as often as men do—they’re just much less likely to get them.

The challenges of nailing down hazy compensation standards are familiar to Luo, the engineer who posts salaries on Twitter. At a previous job, she was offered stock as part of her pay, but she had to press for information as to how much it was worth and what percentage of the company she would own. “It felt taboo,” she says. “It was definitely an eye-opening experience, to realize this is not information people talk about freely. You have this expectation in this [tech] culture that industrywide, transparency is super-important, open conversations are better than secret ones, knowledge should be free. But it really hits a wall when it comes to talking about equity. You don’t know if you’re getting shortchanged.”

To contact the editor responsible for this story: Jeff Muskus at jmuskus@bloomberg.net

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