Does your startup have a compensation structure? Discover a comprehensive startup compensation guide that helps your business focus on long-term growth.
Once you’ve decided to start your company, you have many decisions to make. You need to develop a business plan and conduct comprehensive market research. You need to hire competent and credible managers to propel your company forward. You also need to impress investors.
However, one of the most important decisions you’ll need to consider is compensation. Critical to your overall growth, your compensation structure will vary depending on your startup stage. After all, without the right compensation package, your startup could become one of the 70 percent of startups that fail in their first 20 months.
What are your compensation options? Let’s discover an ideal startup compensation guide to help you maintain your business’s growth.
Quick Takeaways:
- Each startup stage has its compensation strategies to set you up for long-term success.
- Focus your early-stage compensation on providing employees with stock and equity options.
- Later-stage compensation packages need to be more competitive, with salaries and benefits.
Why Is Compensation Important for Startups?
For startups, it’s often a long road from the initial business idea to reality to liquidity. Your compensation structure will help you reach both short and long-term goals, guiding you through the early and later stages of your startup. Not only does your compensation plan help accelerate growth, but it also ensures your founders, leadership, investors, and advisors are aligned in your business plan.
Compensation also allows you to:
- Hire a team that fully buys into your future opportunities
- Find employees that are motivated by accomplishing goals
- Provide non-cash compensation benefits that keep your business competitive
- Reward your employees for their experience and hard work
- Compete with larger corporations with comparable salaries
- Scale your company for long-term growth
However, your compensation isn't simply about determining monetary benefits — it’s also about nurturing your startup for long-term growth.
Startup Compensation Guide for Long-Term Growth
Your startup compensation will depend on your company’s growth stage. Early-stage startups should combine lower salaries and incentives with higher equity. As your startup begins to scale and mature, you can adjust your cash and equity compensation in the other direction.
To get started, follow this startup compensation guide.
Early Stage Compensation Packages
It’s not unusual for startups to offer an attractive candidate more than what they’re paying existing employees to make and keep the hire. However, this impulse decision can lead to budget imbalances and inaccurate expectations for the hire.
In your startup’s early stages, you want to hire employees who are more motivated by a rewarding payoff than a larger paycheck. The payoff could be working toward a goal, like an acquisition or IPO, where you reward early members with heavier bonuses when you hit goals.
You can also offer ownership equity in the form of stock options and vesting schedules in your compensation package. Employees can earn increasing stock options through a four-year vesting period or by reaching milestones.
Overall, don’t overpay for talent and undervalue your equity. If you’re ready to hire new employees, you want to focus on individuals who have an entrepreneurial and achievement-focused mindset. If your early-stage employees hit production numbers, you can aggressively compensate them while still growing your business in timely increments.
Additional tips:
- Use your equity as a perk to recruit the right type of employee
- Avoid complex negotiations about equity or salary with new hires
- Afford hires transparency around the future of your startup and compensation opportunities
- Create a results-based system for annual performance reviews and milestones
Scale Stage Compensation Packages
As your company begins to mature, your risk gets lower and you can begin providing market-rate salaries with fewer equity options. However, employees at established companies are two times more likely to believe they’re paid unfairly, so you need to focus on providing the right compensation mix so your employees feel valued.
Later-stage startups need to offer new hires competitive salaries and benefits. Since you’ll be competing with large companies, you’ll need to employ both conventional and creative tactics, such as:
- Healthcare benefits
- Unlimited PTO
- 401(k) contributions
- Work-from-home policies
- Office furniture reimbursements
- Skills development incentives
Accelerate Your Growth with the Right Startup Compensation Guide
Taking a proactive compensation approach allows you to implement a strategy that propels your startup forward from earlier to later stages. Your compensation structure not only helps you find the right employees, but it also keeps your startup on budget. By building a compensation structure based on your startup stage, you can implement the right hiring practices and tactics to foster long-term growth.
Discover Sellerant’s Strategic Execution Roadmap program to help prepare your startup compensation plan and align budget with growth.