Compensation at Startups

A comprehensive guide on employee compensation for startup founders.

Beth Scheer

In the beginning stages of hiring key talent for an early stage company, an engaged founder may spend anywhere from 40-50% of his or her time recruiting key hires. Having a clear philosophy around compensation and rewards is essential to do this effectively. Additionally, you can benefit from access to up-to-date compensation tools and resources to help hire and retain the best talent.

Why is it so important to have a philosophy around compensation early on? As a company is growing and establishing its culture and values, it needs to make sure that its compensation philosophy is aligned with the company’s overall mission and values. For example, a company that identifies with “transparency” as a value, needs to make sure that its compensations practices are transparent. Anyone involved in the decision making part of the hiring process should be able to communicate what the company’s compensation philosophy is and how it aligns with the company’s overall values. The people involved in making the offer and negotiating salary or equity should know all the steps and data points it takes to arrive at the final offer. They need to be able to explain the “how” and “why.”

We all know people who “winged” it when it came to hiring and putting compensation packages together for employees in the early days. This may work for a while. However, it’s likely to lead to later adjustments and readjustments as you hire more people. The internal inequities become more visible and it becomes harder to fix with each additional hire. The sooner you think about compensation, specifically how you define your compensation philosophy, the stronger the position you’ll be in to hire and retain the best talent in the market.

Every company needs a compensation philosophy that supports the company’s mission and values. Your compensation plan should be able to attract, motivate and retain employees. You’re going to be in a position to talk about why you are doing certain things as a company and need to be able to convey these thoughts clearly and consistently to candidates. Some questions to consider:

Are you a “pay for performance” company? If so, can you explain your bonus plan or sales compensation plan to a potential candidate.

How do you want to reward your employees? Through public recognition? Equity? Personalized gifts, spot bonuses or peer bonuses?

Will a manager have discretion regarding the type of recognition or is this up to the executive team?

How often are spot bonuses awarded?

Are bonuses different for revenue generating employees vs. non-revenue generating employees?

Are you committed to maintaining internal equity on the team?

This

compensation philosophy template⁠

from our friends at

Assemble⁠

may be helpful to get you started.

Contents of this guide

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Our Philosophy As you think about building out a team, you’ll want market data to ensure you’re making hires within the right salary bands.⁠

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Offer Package How do you put the right compensation package together?⁠

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Negotiation & Offer Companies need to be deliberate when coming up with a philosophy around negotiation.⁠

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Other Resources Want to dig deeper? Here are some additional compensation resources:⁠

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Updated

11/1/2023

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