Compensation is an important component of your startup’s talent management strategy, and your compensation plans should support this.

To attract talent and remain competitive, startups need to design a practical and cost-effective compensation plan that meets both the needs of their business and the market for talent.

Compensation: A key tool for talent management

Remember that compensation can be a key recruitment and retention tool, and should always be leveraged to motivate employees toward business objectives. Use compensation plans to reward all employees for business success, or to recognize individual contributions toward that success.

Establish your compensation philosophy and strategy

Create your compensation philosophy

Having a compensation philosophy helps you consistently run your compensation plan while maintaining the flexibility to respond to changing business priorities and environments.

Create an overriding philosophy that focuses on your startup’s intent and overall approach to compensation. This will help you make consistent strategy decisions and implement more tangible aspects of the plan.

Define your compensation strategy

Aim to keep your compensation strategy as simple as possible, to facilitate communication and understanding. To develop your strategy, consider the key elements of the overall compensation package:

  • Who is the market? Who do you compete with for talent and skills?
  • Do you want to lead, match or lag behind this market? Do you want to compare to the median or average rate?
  • Is your goal to have fairness between employees within the organization or to be competitive within each specific skills market—or can you balance both?
  • What mix does your startup favour? It could include:
  • What mix does your key talent (e.g., your A-players, tech talent) favour? It could include:
    • Base salary
    • Bonus and incentive plans
    • Stock options

Once you have thought these through, pull together your key decision points and articulate them into a philosophy and strategy statement. This will guide your tactical compensation and talent management decisions and help you communicate your approach to employees.

Compensation philosophy and strategy statement: Example

“XYZ Company intends to administer pay in a manner that is non-discriminatory and competitive, taking into consideration the organization’s overall financial condition, the supply and demand for skills, and individual performance.

Our compensation strategy is to develop salary ranges that are competitive with the range of salaries being offered in the skills market, based on published salary data and business conditions. Salary ranges for certain positions may be targeted differently, based on competitive challenges that develop from time to time. Individuals will be paid within the range determined for their position, based on individual performance and contribution.”

Building your compensation strategy into your compensation plan

Once you have identified your startup’s compensation strategy, you can work to implement it into your compensation plan. You’ll need to:

  • Assess your current position against the position and marketplace that you have defined in your strategy. To conduct this assessment, you must have accurate job descriptions for your employees. Always match jobs based on content, scope and impact, and not on the job title. To obtain relevant data, you must participate in the same surveys as your defined market for talent
  • Assess talent in similar roles against each other internally, and validate any differences in pay
  • Develop guidelines for your incentive plans (if applicable)
  • Develop guidelines for your stock options plan (if applicable)