Executive Q&A: Mike Metzger

Last year, the private equity firm Warburg Pincus recapitalized PayScale with a majority investment of up to $100 million. With that infusion, CEO Mike Metzger now sees PayScale poised to have an even greater impact in helping companies make transparent, well-informed salary decisions for millions of employees around the world.

YOUTH: I grew up in Akron, Ohio. My dad was part of a family business his father started as a drugstore and soda fountain. My grandfather began developing film on the side and the business eventually became one of the largest graphic arts distributorships in northeastern Ohio. I spent some time in the warehouse, did deliveries all through high school.

EDUCATION: I went to Clarkson College in upstate New York, got an engineering degree and came out here [in 1981] to work for Boeing. In 1985, I got an MBA at Carnegie Mellon. I was looking for opportunities on the marketing side, so [in 1987] I joined Heinz, where I did consumer-packaged-goods marketing.

RETURN TO THE NORTHWEST: I went from there to Microsoft. At the time [1990], Microsoft was forming its consumer division, so it was a great fit.
PAYSCALE: The founder of PayScale is a fellow named Joe Giordano. Joe and I had worked together at Microsoft. Joe had been building PayScale for a few years and he was in the process of raising a round of financing. I joined and we closed the A round of financing in October of 2004.

ELEVATOR PITCH: PayScale believes companies and employees are better if theyre sharing the same set of factual information about not only what they get paid but also why they get paid what theyre paid and how that compares to other people like them in the local market. Part of the underlying philosophy is that a rich, insightful data set thats shared between these vested parties makes for a better outcome, a higher level of engagement and a higher level of goal attainment.

PUSHBACK: Theres always resistance [to transparency]. Compensation has been around forever and in most organizations it is still treated as a black art. Cultural change is hard. Every company has to choose what level of transparency it wants, but even being transparent about where youre going to be transparent and where youre not is a huge influencer of how your team feels about you as an organization.

THE COMPETITION: There isnt anybody doing something similar. We have a unique data set. We gather our data only from individuals. We have a consumer website where we publish free a bunch of information about compensation. Individuals show up because theyre trying to understand how they compare to people just like themselves and part of that give/get is that some subset of those people share information about themselves. Well get close to nine to 10 million unique visitors a month. In the course of a year, well get about five million new profiles. Were the only vendor out there that has that kind of data source, and the advantage over others is that were asking individuals one at a time about themselves and we do it in a very scalable platform called the internet. We probably get three or four times the amount of detail about every individual than you can get from any other means. Everyone else who is selling compensation information is gathering information from employers.

WARBURG PINCUS: Warburg is a growth equity investor. The impression that most people have of private equity is a little bit more skewed toward driving operating efficiencies and packaging things up [for sale], and the growth equity guys couldnt be more diametrically opposite of that. I mean, we literally have yet to have a conversation about reducing costs to create efficiencies. Dont get me wrong. At some point, we probably will have some of those conversations, but I expect those will be in year six, not years one, two, three, four or five. I really cant believe how fortunate we are. They are doing exactly everything they said they were going to do and more.

FIVE-YEAR PLAN: When Warburg invested, we were at 140 people. Well exit this month [June 2015] at 220 people. Those investments have been in sales and marketing, engineering, customer success. If you were to look at our place in the ecosystem, we are an SMB-focused, compensation strategy solution and we acquire our customers through web marketing that turns into leads. Clients typically buy three-year contracts, then we renew them. Weve gotten really, really good at the fastball, so when we see a fastball coming in, we can hit the leather out of it. We turn them into customers and then we hang on to them. We know that play. Credit where its due: Our original VC backers helped us tune that capability. Where Warburg wants us to get, where we want to get, is we would like this company to be within spitting distance of a $100 million revenue company in five years. Right now, I would say were a quarter of the way there.

OPPORTUNITY: There are about 140,000 companies in North America that have fewer than 5,000 employees. Near as we can tell, maybe 10,000 of them are buying some kind of compensation solution. Weve got 3,400 or 3,500 customers, so we own a chunk of that market, but the bigger chunk of the market is not buying anything today. We think theres a lot of room to grow, with the kind of people were selling to today and the kind of solution were selling today.

BIGGER FISH: Over time, we have moved further upmarket from a size perspective in an incremental, natural fashion. Well probably get more intentional about that over the next couple of years. The further upmarket we go, the more competitors we run into. If our average new customer this year has 700 to 800 employees, I would expect in two or three years that will go up above 1,000 to 2,000.

VALUES: My dad taught me respect for the individual, being direct and upfront with people, but doing it in a very respectful way and having a value for the individual beyond their commercial contributions. When people walk in here, they dont walk into their work lives. They bring their whole lives to our team and we need to be able to interact with that.