Compensation for Startups
Updated: Jan 21
Compensation can be tricky to get right. Some employees see compensation as a way to reward behavior; others see it as a way to punish those who don’t meet specific standards.
There is no one size fits-all approach to compensation. Your strategy will most likely include a mix of the points below. Whatever the approach, be as transparent as possible when it comes to compensation with your employees.
1) Salary and bonuses
An employee’s salary will be contingent on their previous experience, company’s stage, and the role. At an early-stage company, employees can almost always expect a lower salary compared to the market rate. However, as the company matures, you can expect this salary to become closer and closer to the industry norm. To know what to expect for salary, research industry ranges on websites like Glassdoor or check out Startup Salary and Equity from Angel Co.
Besides base salary, another way to reward and compensate employees is through bonuses. Bonuses are sometimes preferred by early stage companies as they are a variable cost, allowing for greater financial flexibility when business is down. Some companies will tie bonuses to sales in order to incentivize employees, although there can be some downsides to poorly designed incentivize plans – check out these resources for more details
Equity compensation can often be used by cash-strapped startups. Equity compensation often goes hand-in-hand with a below-market salary, although they are not necessarily mutually exclusive. Startup Salary and Equity from Angel Co is a good resource to determine equity amount.
3) Career promotions
Career promotions are an important motivator for employees – particularly Millennials which make up the biggest generation currently in the workforce. One survey found that 63% of employees would rather get a promotion with no salary increase than a salary increase with no promotion. Another study found that 72% of men and 55% of women said they’re receptive to a promotion without a pay increase.
Managers should talk to their employees to understand what they want and what motivates them. They can do this as part of their regular feedback conversations - check out our article on the importance of having these feedback conversations regularly.
4) Benefits and rewards
Some startups may allow pets at the office, offer paid gym memberships, tickets to a show, catered lunches, gift cards to a local restaurant and other various 'swag' items (mugs, water bottles, USBs). Flexible remote-working options and generous vacation policies are also attractive to employees.
For more mature startups, travel stipends can also be a good way to compensate your talent. The nature and extent of benefits and rewards can be largely contingent on company stage. Understanding what drives your employees will help determine your company's benefits. Managers should ask their employees often what motivates them.
5) Other non-monetary benefits
78% of employees say their job represents more than a paycheck. Employees truly want to like their work and feel valued. They want to develop and be motivated. They want to understand and be aligned with their company values and mission. Having a great company culture that's focused on developing and motivating your employees can be a cost effective way to retain employees - even without the lavish bonuses.
Ensure that you are having frequent feedback conversations often with employees, giving recognition where recognition is due, and invest in team building exercises to ensure that your employees are satisfied with their work. At the end of the day, understanding what drives and motivates you employees is important in determining how to properly reward and recognize them.
If you liked this article, make sure to check out: