Striking a compensation structure is usually the last thing on any founder’s mind. But just like the exercise regime that you keep putting off, it will only slowly manifest into an enormous problem in the future.
And I am not talking about anything complicated. This isn’t going to be a 10-levels, multi grids table with complex formulas that will take a rocket scientist to understand.
It is a simple framework to provide the right foundation that will compliment your scaling journey.
Here’s how you start:
1. Establish an organisation structure (Even if you only have one person)
In any businesses, there are bound to be multiple different departments. From sales to marketing to operations and many others. End of the day, a business is to provide a value at a profit.
So, whether you are running a hospital, a mom-and-pop shop or a tech start-up, the basic premise will not deviate too far away.
In one of the start-ups I’m familiar with, their department structure would fall into:
- Marketing (or growth hacking as they prefer to call it)
- HR & Admin
- Software Development
Although not an immediate requirement, they foresee the need to have a Customer Success department in the foreseeable future.
That should also be an addition to the structure list as well.
2. Break them into different gradings
A good start is to have at least 3 different gradings for each department.
- Senior (5+ years)
- Junior (<5 years)
For each grading, it should come with two columns. One for base (salary) and the other is for equity.
3. Establish the medium for each grading
Now is the part to enter in a base salary for each grading. Remember there are no right or wrong answers. It takes into consideration the risk of your company, goodwill, reputation of management team and foreseeable prospects (which differs for everyone).
Getting the perfect numbers is almost impossible so don’t crack your head over it. But it doesn’t mean you can pluck numbers from thin air.
A good start is to check with prominent salary reports that are available in your country but be wary of those coming from recruitment agencies. Those tend to be on the higher side and since they are paid a % of compensation, it makes sense to align (read: inflate). Or you could refer to companies such as Salary Board.
4. Provide transparency on how the numbers are computed
Don’t leave people wondering where you got your data set or how credible you’re being on this issue.
This also sets a good perception on the science behind the numbers, and it wasn’t done by spinning a wheel.
It might seem like the least important thing to do but compensation structures will ultimately affect your most valuable asset in your business – people.
And the way to your start-up success is to keep them motivated. That begins with a right and fair salary framework. The opposite is a constant fire fight to fit square pegs into round holes while making sure the machine works.
It will inevitably fall apart.