As you think about building out a team, you’ll want market data to ensure you’re making hires within the right salary bands.
We have developed our own philosophy around compensation at Homebrew based on experiences at different companies and our values around compensation and equity.
We believe in paying market average salaries (based on the phase of startup you're leading) and “over-equitizing” early employees to provide a compelling compensation package and strong alignment of interests.
Why do we recommend over-equitizing early employees?
We want to adjust the risk/reward for employees betting on an unknown company that may not even have a product yet.
We are getting people to make a commitment to a management team, a mission, and an idea that may or may not become a profitable business.
We want to hire people that truly believe in the company’s mission and by giving them substantial ownership in the company early on, we are making them partners in the mission.
This is not about taking a job -- this is about building something meaningful.
How does this impact hiring the best talent?
Many employees have taken pay cuts from larger companies and a strong equity offer will help close the gap. A strong equity package explained by a founder, board member or investor with a compelling story will help close a candidate.
Early employees want/need to feel valued and have “skin in the game.” Owning a piece of the company may be more important than cash/base salary. This will be particularly true for someone who has had a successful exit from a previous company.
As the company scales, you will need to bring on more senior talent with depth of knowledge rather than breadth of knowledge. Industry experts are expensive. You won’t need to adjust salaries for everyone if equity takes care of the salary gap.
regarding compensation that we wholeheartedly agree with. We encourage you to revisit these when you are negotiating compensation with candidates or raises with current employees.
No one is ever happy with compensation, and compensation has never made anyone happy (long term). Get your candidates to buy into the vision of your company and fall in love with the team. Compensation will not be the reason someone stays at your company for the long haul.
People always find out what everyone else is making. We know your parents told you never to talk about money but people do. Potential candidates find out things while they are interviewing from former employees and once they are hired from current employees. Assume that everyone knows everything. Founders, hiring managers, recruiters should be able to justify every employee’s compensation. This is a good way to sanity check every comp decision.
Revisit compensation only 1x per year (max 2x per year). Don’t over complicate things. If performance reviews are tied to compensation, then manage expectations (1 raise per year pending performance). This can be in the form of equity vs. salary (recommended for start ups). If someone is coming from a larger company, they probably expect a raise every year regardless of performance. Make sure you set expectations accordingly.
On the spectrum between formulaic and discretionary compensation, be as formulaic as you can. Be transparent with candidates regarding your company’s compensation philosophy. This is why it is so important that everyone involved in the interview process fully understands the company’s philosophy and is comfortable selling it to all levels of candidates. Don’t lose a candidate because another startup is giving them more cash in the short term. Make sure they understand how to value their equity.