New hire offers: Note to CEO & Executives

IN RELATION TO PRINCIPLE #1: NEW HIRE OFFERS

Move your company to a market-based compensation structure and eliminate ratings-driven compensation.

💡 Remember that the company is paying for a particular job, and the price of that job should be determined primarily by the market, not by the individual candidate.

At its most basic level, a simple comp structure could look like the following illustrative simplified market-based compensation structure:

Individual Contributor

Technical (eg. s/w)

$X-X and XX options

Non-technical (eg. HR)

$X-X and XX options

Manager

Technical (eg. s/w)

$X-X and XX options

Non-technical (eg. HR)

$X-X and XX options

Executive

Technical (eg. s/w)

$X-X and XX options

Non-technical (eg. HR)

$X-X and XX options

⁠

🧩 A more robust example is found in the

Otis Compensation (Public)⁠

table.

Common inputs for creating a market-based comp structure

Data set: Use Radford, OptionImpact, Mercer or some other data set that is relevant to your industry to determine compensation targets for both cash and stock-based equity. (See

Tools⁠

on the previous page)

Company stage: Cut the data by round, valuation or capital raised that ensures you are comparing yourself to the relevant set of companies that will have similar cash/equity trade-offs.

☝️NOTE: Emerging comp data suggests that capital raised is most closely correlated with differences in compensation in the pre-IPO venture-backed tech sector

Geography: You may want to include a geographical cost-of-labor adjustment. This article from Affirm nicely outlines a zone-based approach that is becoming commonplace:

The New Ways We Work⁠

⁠

Other considerations

Size of range: Set compensation bands as tightly as possible.

💡Increasingly, early stage companies are moving to no-negotiation comp targets.

Ie, a band that is so tight it has become a single point such as $150K cash salary instead of $145-155K range.

Cadence of adjustment: Annually, adjust all comp targets or band based on market data. i.e. if you have chosen to position your cash and equity compensation at the 50th percentile, adjust all bands/targets to the new market-based 50th percentile.

A quick note on ‘annual’ cadences: If you are a high-growth or very early-stage (pre-Seed, Seed, A round) venture-backed business that is raising new capital every 12-24 months, you may also want to consider timing your market based comp adjustment with a new capital raise, rather than on an annual cycle. Whatever cadence you choose, communicate it clearly to your employees - e.g., “this is our new comp approach and we will adjust it the earlier of December 2021 or our next equity funding round”

In some cases, you may see certain job types have higher percentage increases than other job types. For example, in recent years, AI/ML engineers’ compensation has been increasing more quickly than other software engineers.

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