Determining How Much to Pay Your Team
Hint: It starts with your compensation philosophy
A question I’ve been getting from all my clients, no matter the stage or industry, is around how to make consistent pay decisions. How do I make sure pay is equitable? How can I spend less time triangulating offers or how much equity should I offer?
It’s great that so many companies are thinking about this but sometimes it’s hard to operationalize. The key is in defining your set of beliefs about compensation and then putting some structure around it.
Many companies have some kind of philosophy already. Maybe you’re already Googling what the market pays on average across the US and use that number. Maybe you aim a little lower on cash but are generous with your equity. Maybe you only give discretionary bonuses to your top performers. All of this is actually your compensation philosophy.
Defining your compensation philosophy is the starting point for making equitable, consistent pay decisions that are scalable. A little extra work up front will help not only the leadership team make good decisions, but will help managers take ownership of pay conversations with their team.
Generally on the philosophy front, I like to start with a set of guiding principles. From there:
Determine your compensation philosophy. What are your fundamental beliefs about rewarding your team and what are the key components to your compensation model (salary, bonus, equity, etc)? Make sure it ladders up to your guiding principles.
Define Your Levels - Pave has some great resources for this. You’ll need to evaluate your levels internally and align your existing team members to a level. I generally recommend no more than 8 or 9 levels for early stage companies. Make sure to get the department leader’s input on this.
Identify your job families. Job families are essentially functional groupings of teams. We have those to simplify our bands (instead of having a salary band for every position). A rule of thumb is if the compensation structure or salary ranges are significantly different (e.g. your engineering team vs. customer success), think about creating a new family.
Determine where and how you pay vs. the market (see #1 for your Compensation Philosophy)
Invest in a benchmarking tool and map your levels to it based on your philosophy. For early-stage, non-public companies, Pave (formerly Option Impact), Radford and Carta all have great benchmarks.
From there, write it out! You’ll be surprised how often you’ll refer back to it and you can continue building out your philosophy in more detail with answers to questions like:
When do we give salary increases?
What’s our take on equity refreshes?
How often do we review salary?
I use a simple template with my clients for compensation philosophy and we find ourselves referencing it frequently. I read this somewhere about why we do this work up front, and it really resonated with me: “procedural transparency allows for structural conversations”. Having your foundations right allows for more robust and meaningful conversations and focus on what matters.
