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Executive Compensation Best Practices for Startups

| Apr 1, 2022 11:39:00 AM | By

 

This article is an excerpt from a fireside chat with OpenComp co-founders, Thanh Nguyen and Nancy Connery, who were also Salesforce’s first two HR leaders. 

 

How does your startup decide what to pay its executives?

 

If your executive compensation strategy is based on presenting a shinier offer than the competition, it’s time to adopt a plan that goes beyond high numbers.

 

Well-rounded exec comp does more than lure top candidates. It also protects a company’s future by helping it:

  • Define rewards and career pathways that encourage execs to stay
  • Manage burn and equity dilution to keep finances balanced and strong through funding stages
  • Build a culture of trust and transparency that gives employees at all levels confidence that the company pays fairly

 

Getting exec comp right means greater and faster growth, stronger cultures and better ability to attract and keep top talent. 

 

Follow these best practices to create an intelligent and competitive executive comp program.  

 

Best practice #1: Institute pay ranges

 

Pay based on titles can cause problems for early stage companies whose executives juggle responsibilities typically handled by multiple individuals in varied roles. It’s hard to find the right data set for multitasking. 

 

Pay ranges (or pay bands) can help startups solve for this variation in responsibilities. One strategy is to take a broad range of executive roles (whether they’re in seat or planned hires), gather and average their data and build a pay band around this average. This band will address a range of skills sets and expertise.

 

Sometimes, you may decide to make an offer above the pay range to attract in-demand talent for critical roles. In those cases, identify the skill set, industry or previous experience you want. And make sure your exceptions are consistent. 

 

Best practice #2: Lead with your best offer

 

Eliminate the back-and-forth of salary negotiation and present your best offer first. 

 

This is a shift from historical practices that put the onus on individuals who don’t have access to market data to negotiate, outperform and then fight for a refresh. 

 

The responsibility now falls on companies to pay fairly, be transparent and support individuals so they can perform at high levels. 

 

Share the pay and equity ranges, where the candidate falls in those ranges, how their offer compares to the market and how your company’s compensation philosophy was applied. 

 

This removes the stress from salary discussions and helps create a culture of trust and transparency from day one. 

 

Best practice #3: Document how you pay for performance

 

How will you reward high achievers?

 

Creating and communicating a rewards strategy based on performance helps move salary discussions past the initial offer. It also clarifies expectations and how someone’s career could progress during their time at your company. 




A rewards strategy also helps execs create measurable and cascading goals tied to company milestones like a fund raise, a certain valuation or product launch. Each goal should be objective and measurable with a defined reward for achieving it.

 

Best practice #4: Hire at the right level

Before you begin your search for candidates, get clear on the skill level you want. Do you want someone on the promotion track or someone moving laterally? Are you open to hiring someone who’s ready to rise to their first executive role? Or do you want an exec with proven experience?

 

Alignment of expectations gives people a greater chance to flourish. 

 

Best practice #5: Look for opportunities to hire internally

 

Companies with big budgets often look externally for executives and miss chances to reward high-performers with promotions. 

 

Are there current employees you can groom for executive roles? This might not be feasible for young companies, but look for possibilities as you grow. Your advantage is having first-hand knowledge of a person’s strengths, accomplishments and potential. 

 

Employees stay 41% longer at companies with high internal hiring. 

 

Best practice #6: Conduct the Tahoe Test

 

Personality matters, too. 

 

When evaluating a candidate, ask yourself the simple question that OpenComp’s founders consider during the hiring process: Would I want to drive to Tahoe (from the San Francisco Bay Area) with this person? If the answer is yes, and all other boxes are checked, it’s probably a good hiring decision. 

 

Much like a long road trip, startup life is fraught with unexpected, stressful and wondrous moments. The ride is better when you appreciate the company. 

 

Best practice #7: Support transparent and open communication

 

Extend comp conversation beyond the hiring process and annual reviews. Ongoing discussions about pay are core to a culture of trust. 

 

Here are the pillars of meaningful compensation conversations. 

 

  • Consistency. This is key in compensation. Make sure everyone receives the same message and understands how compensation is handled across the board.
  • Transparency and education. These two pillars go hand-in-hand, because information without context is meaningless. Don’t just share comp information, help people understand what it means for them.
  • Open door policy. Extend pay conversations beyond the hiring process and annual reviews. Executives, managers and employees should feel comfortable and empowered to talk to each other about compensation whenever a need or question comes up.   

 

Want a deeper dive into exec pay?

Here are other resources to help you master executive compensation:

E-book, “The High-Growth Guide to Executive Compensation.”  


On-demand webinar, “Exec Comp: A Fireside Chat with Salesforce’s Founding HR Team.