A Counterintuitive System for Startup Compensation

This First Round Review article  is one of the better articles on compensation I’ve read in a while, showcasing Molly Graham‘s comp framework.

A Counterintuitive System for Startup Compensation

The gist: a few key principles (no one is ever happy with comp, and comp never made anyone happy; salary opacity is a myth; etc.) yield a fairly simple, transparent and straight-forward comp system.

If you acknowledge the limited (but still critical) role that comp plays in attracting and retaining the best talent, and that fairly quickly, group effects (like fairness) become much more important than individual effects (attracting/retaining a specific person) – a very strong case can be made for a system that’s as formulaic as possible, and intentionally trying to keep discretion to the bare minimum.

Graham proposes a straw man in which a set of levels are applied cross-functionally, and base comp and equity are set only according to them. The only functional exception is sales, but comp for those roles is being addressed with the same formulaic rigor. There are no exceptions and no negotiations. The only discretion that a hiring manager may have is around slotting a candidate/employee into a certain level.

My favorite part in the article is its end, where an outline for scaling the plan as the company grows is discussed. This is an often overlooked aspect of such systems and I was delighted to see that it wasn’t ignored in this piece.

On a slightly more philosophical/abstract level, it’s interesting to think about the role equity typically plays in this plan and others. I think most startups view equity as a necessity for keeping cash burn rates under control, as well as a self-selection mechanism for attracting talent with high risk-tolerance w/r/t their personal comp (which is viewed as a desirable trait). A scenario in which one or more of these constraints/assumptions is relaxed, or a scenario in which they are supplemented with add’l assumptions about the purpose of equity, may suggest a different role for equity in such system.

 

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A Counterintuitive System for Startup Compensation

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