Having (A) been in the compensation industry for nearly a decade, (B) run Option Impact, a pre-IPO salary survey, for 5 years, (C) worked with over 5,000 startups and 300 VCs, and now (D) helped companies streamline comp cycles, I’ve seen just about every compensation strategy, or lack thereof, under the sun.
Spoiler alert: There’s not a magic playbook that will tell you exactly what you should do when building out your compensation strategy. Your company is unique, your budget is unique, and your strategy will be unique. To get started, you’ll need to figure out how to best incentivize current and future employees, in a scalable way, with the means you have available.
At the end of the day, the best indicator of the health of your compensation strategy is your offer acceptance rate and attrition. If people feel well-compensated, it’s more likely that they’ll choose to work for and choose to stay at your company. If you’re seeing a higher rejection or resignation rate, and there aren’t other systemic issues to address at your company, then you’ll likely want to adjust your compensation positioning, budget permitting.
Step 1: Get benchmarking data
Step 2: Make high-level compensation strategy decisions
Step 3: Combine the data and strategy
Step 4: Review
Benchmarking is the first place to start if you’re looking to build out ranges for your compensation strategy. Whether you’re using Comprehensive.io, guessing, asking your VCs, or using another source (Salary.com, Glassdoor, Option Impact, Radford, Pave, Croner, ERI etc.) – you need to get some sense of which data you’d like to attribute to which roles. (Psst. Comprehensive.io culls market data from active job posts and aggregates it to provide a new, dynamic dataset. It’s free – no survey input nor integration required.)
Companies rely too heavily on imperfect market data. The goal is to find a dataset that is directionally correct and/or fiscally attainable, then tweak it to align with the company’s available resources and roles.
Private companies shouldn’t only look at private company data - if your equity is non-existent or less than compelling in quantity or potential upside, you’re competing on cash. This means it’s a good idea to consider public company benchmarks in your quest for data.
Amount of funding varies greatly by company and round. Data is often pulled by funding round, whereas a capital raised or revenue data set will often give you a more accurate grouping of like companies.
Looking for exact data for unique roles or companies that are the exact same as yours (same funding, number of employees, etc.) can lead to smaller and therefore skewed results. Best practice is to start with a larger sample size for more accurate data.
Consider multiple factors for your cash compensation strategy - where you’ll play in the labor market, the value of your equity, and the value of jobs at your company.
Compensation doesn’t evolve as quickly as the company. Available resources and need for simplicity or complexity can change rapidly, especially at earlier stages. Companies should revisit and reassess strategy with each compensation cycle to ensure that the strategy reflects the company’s current position.
Benchmarking alone is not a strategy. You need to take a holistic look at your data and ensure it makes sense relative to a role’s level and value at a company.
Blindly treating benchmarks as ranges can lead to inconsistencies between levels and functions. Market data can be inconsistent for a number of reasons including ad hoc hiring, incorrect leveling or job family selection, and skews based on survey participants.
Don’t set it and forget it. You’ll want to revisit your ranges between every 6 and 12 months to see if there have been any changes to the market and adjust accordingly. This will ensure that you’ll be able to remain competitive.
On the flip side, don’t change your ranges too frequently to avoid following fluctuations of the market.
Refining your compensation strategy is an iterative process - it takes some finessing to develop something that’s consistent, aligns with your philosophy, and fits in the confines of your budget.
Compensation review cycles are extremely manual, time-consuming, and error-prone when you’re capturing all of this information and tracking recommendations via spreadsheets. But, comp reviews don’t need to provoke a sense of dread.
Comprehensive integrates with your existing HR systems to provide a seamless experience for managers, executives, and cycle administrators alike.
Calculate increases, solicit feedback, and calibrate employees with ease and confidence. Then communicate compensation to employees with automated award letters and a total rewards dashboard.
If you’re still running your comp cycles like they did when dinosaurs roamed the earth - stop immediately and let’s chat about how to modernize your compensation management!