Lay it all out on the negotiation table, including the salary range you can afford and the perks you can offer to sweeten the deal. ~ Gillian Dewar, Chief Financial Officer, Crediful
In this article, eight industry leaders, including founders and CEOs, as well as Chief Financial Officers, share their insights on salary negotiations in early-stage startups. From balancing employee value and growth vision to rewarding exceptional contributions with bonuses, these experts provide valuable tips and experiences to ensure fairness, legal compliance, and mutually beneficial outcomes.
- Balance Employee Value and Growth Vision
- Adapt Compensation to Living Costs
- Utilize Benchmarking Data and Market Rates
- Be Upfront About Stock Options
- Combine Research and Equity Options
- Focus on Transparency
- Prioritize Honesty and Clarity
- Reward Exceptional Contributions with Bonuses
Balance Employee Value and Growth Vision
Approaching salary negotiations in early-stage startups requires a careful balance. First, the negotiation should focus on the value that the employee can generate for the startup. This includes their skills, experience, and potential contributions, which should be reflected in their remuneration.
Concurrently, it’s crucial to engage in transparent discussions about the employee’s expectations and growth vision. Understanding their aspirations can help craft a compensation package that not only recognizes their current worth but also incentivizes their future growth within the startup.
One successful negotiation instance involved a promising candidate with a unique skill set. The discussion was open and centered on his potential contribution and his growth vision. The final package was mutually beneficial: it acknowledged his unique value, met his expectations, and motivated him to contribute to the startup’s success.
Adapt Compensation to Living Costs
As we scaled our remote workforce, we confronted an essential truth: the cost of living varies widely, and a global team means navigating these disparities sensitively. In this approach, we set baseline salaries for specific roles, but adjusted them based on the relative cost of living in the employee’s region.
This ensured that our employees had competitive salaries, allowing for a comparable quality of life. Additionally, we introduced a “Living Equilibrium Bonus” that would adjust periodically, ensuring that shifts in regional economic climates wouldn’t erode purchasing power. This adaptive model helped us attract top talent from various parts of the world and underscored our commitment to fairness.
Utilize Benchmarking Data and Market Rates
One effective approach we use at Compt is utilizing benchmarking data and market rates as the foundation for determining compensation. This helps us balance offering competitive compensation to attract and retain talent, while also maintaining internal equity and avoiding pay gaps.
We also clarify that we don’t negotiate and we offer a clear salary range for the role. We then explain our data and approach in one of the first interviews so we don’t waste anyone’s time.
Early on, one of our engineers expressed his displeasure with the salary increase we were offering during his annual review. He had evolved his role and increased his skills; those adjustments hadn’t been factored into the new salary. He pushed back and gave us the number he had in mind, and we’re glad he did because he was right.
We reviewed his progress, matched it to what we were seeing in the market, and made changes accordingly. He’s one of our most senior engineers now.
Be Upfront About Stock Options
As the HR director for an early-stage startup, it’s difficult to negotiate salaries and benefits packages with candidates. Companies in these positions typically cannot match the salaries that other large companies in their industry can offer. Therefore, it often comes down to the amount of stock options and equity the company will offer, and how much risk the candidate will take with their career.
In these cases, it’s crucial that the company not hide or play games with stock options and instead be upfront and honest with the employee. My biggest tip is to remove any clauses in their stock option agreement related to repurchase rights for vested shares. This protects the employee if they are ever terminated or leave on their own accord. In opinion, this is the best way to ensure fairness during negotiations.
Combine Research and Equity Options
For a startup, approaching salary negotiations with employees thoroughly by researching industry standards and local regulations to set a solid foundation is crucial. Transparency and open communication are key. It’s important to comprehensively discuss expectations openly and focus on the value the employee brings to the company, considering both monetary and non-monetary benefits, such as equity or flexible work arrangements.
In a recent negotiation, a slightly lower base salary was offered to some employees but significant stock options were emphasized. Most of them recognized the potential and accepted the offer, aligning their interests with the startup’s success.
Focus on Transparency
Your company resources have their limits, especially when you consider what’s fair and viable for other stakeholders like investors, founders, and other employees. The best way to ensure fairness and start a working relationship built on trust is to be upfront and transparent about how much room there is for negotiation. Explain where those limits lie, why they exist, and how those numbers could change as your business grows.
If you explain how what you’re doing protects the company, and therefore the candidate, if they choose to accept the role, they will recognize that everyone’s best interests influence negotiations.
That said, it’s still important to find a balance between salary and equity. You can’t “make up” for chronically underpaying your staff with equity in the early stages because you’re asking your team to take on too much risk and setting them up for serious financial problems if your company flops. If you can’t afford to pay a living wage, it’s irresponsible to hire anyone.
Prioritize Honesty and Clarity
You might not be flush with cash for easy salary negotiations, but it’s important to be honest during the process or face a team of irate employees who aren’t likely to stick around. Lay it all out on the negotiation table, including the salary range you can afford and the perks you can offer to sweeten the deal.
That might include benefits, flexibility, or the potential for advancement. Don’t make big promises about advancement you can’t keep later, but explain the opportunities that await and the milestones you’d need to hit individually and collectively for them to happen.
Reward Exceptional Contributions with Bonuses
Offer performance-based bonuses as a means to reward exceptional contributions. Establish measurable performance metrics aligned with the company’s objectives to ensure fairness and minimize bias. Communicate these metrics openly during negotiation, showcasing the link between outstanding performance and corresponding bonuses.
Integrate regular performance reviews to track progress and provide feedback to nurture constant improvement. Remember, performance-based bonuses must adhere to labor laws and not infringe upon minimum wage or overtime regulations.