Do you have a set system for compensation/salaries? Why or why not?
The following answers are provided by members of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. Use Compensation Systems
As you hire a professional HR Manager or a VP of Human Resources, they will help you think through your compensation philosophies. It’s important as a company scales to have a clear guidelines (80th percentile, 90th percentile), to benchmark yourself to competitors and make adjustments. Don’t wait until someone hands in a resignation to find out that you’ve been paying below market rate.
2. Have a System in Place
We don’t currently have a set compensation system for folks at different levels at our company. That’s caused a lot of grief in negotiations, as I have had to make decisions on the fly without solid footing. More importantly, it can hurt morale as compensation numbers get shared — and they always get shared. Communicate how your compensation plan works and give your team clear milestones to grow.
3. Stay Flexibile to Retain Talent
Set salaries are outdated due to the changing employment environment. In a world where employees came to the office and performed specific tasks, it fit. With the changing workforce, set salaries are no longer appropriate. Find talent and compensate him or her slightly above market rates.
4. Know That One Size Doesn’t Fit All
I don’t have a set system for compensation/salaries — everyone’s different and has different needs. Large companies typically have a criteria for salaries — years of experience, the department they’re in, the list goes on. I care more about the employee’s life situation. An employee that has children may need more tangible income, but it may be better to offer a young go-getter educational stipends.
5. Tier Salaries Per Title
Earlier in the year we implemented a structure that showcased what set salaries were assigned per title. Every title has three tiers, and if an employee wishes to make more money in salary alone, he or she needs to move to the next title which has more responsibility and leadership aspects. This format keeps compensation chatter at a minimum.
6. Define a Timeline for Promotions
Having defined promotion timelines is very important as that reduces confusion as to when someone is up for a raise or promotion review. Otherwise each employee will be unsure when to discuss promotions and introverted employees will get the short end of the stick.
7. Level the Playing Fields
I make sure to have a set system for commission structures for all employees. This eliminates internal turmoil between employees. In addition, it is easier for my sales employees to compare themselves to each other, pushing them to compete.
8. Tie Compensation to Performance
Regardless of the position an employee has at your company, his compensation should be tied, in part, to his efforts — whether through commission on sales, premiums tied to productivity, or bonuses for initiatives taken beyond job description responsibilities. Offering goal-based compensation gives employees the desire and the courage to exceed both your expectations and their own.
9. It Depends on the Company Stage
It definitely depends on the stage of a company, but for startups I don’t think you should. In early stages, this is a place where you can see an employee’s motivation and in fact determine culture fit. If they’re willing to forego higher salaries for stock because that’s what you as the founder are doing, that means they’re sticking around through the lows.
10. Evolve Compensation Systems With the Company
Compensation systems evolve as you do. Pre-Series A we offered a “shoe-string” equity/salary model — pull one end higher (equity) and the other end decreases (salary). Most startups need to preserve cash, so this system works well in the early days. Post Series A we developed clear-cut, non-negotiable salaries and equity comp for each role determined by the seniority of the position.
11. Create One System With Multiple Models
We have multiple compensation models that we use. We never liked trying to fit everyone into the same compensation model. Nor do we support making it up as we go. By having multiple models, we provide ourselves with the flexibility to create the optimal arrangement for each person, while also ensuring we don’t make silly mistakes by trying something new every time we hire.
12. Don’t Focus on It Early On
One of the advantages early-stage businesses have is that they can be more creative with compensation. Certain employees may be more motivated by equity or bonuses while others want the security of a higher base salary. By staying flexible, you’ll attract a wider pool of quality candidates. Additionally, the goals of the business can change frequently, and compensation should reflect those changes.