Cash Money and Paper Money
Aligning incentives at early stage start ups
Compensation structure is something I think a lot about lately. How do you balance cash and equity grants? How do you align incentives so the company is working on the same page, towards the same goal, at the same speed. NY has had less big exits, so we see many hires who don’t yet understand the value of upside through equity. This makes me shake my head and sigh.
Internally we use a spreadsheet to determine three combinations of salary + options based on education level and experience. These are weighted 30:70 towards experience. Extremely technical disciplines aside, I’m a big believer that 10 years in the real world environment trumps a masters degree anyway.
Spreadsheets don’t account for feelings.
Hyper growth at startups can be particularly challenging for early stage employees as the company and structure growth around them, but ultimately it is next to impossible for personal growth to keep up.
Instead of outgrowing the role, the role outgrows you. Titles are fluid. VP at a 3 month old startup is a very different role then VP at a 1 year old startup or 3 year old company. There is a reason founder CEO’s are replaced with executive CEO’s. This rule applies to everyone.
While this gap can be addressed through continued education, and role specialization - it can be hard to stomach. I remember asking my former boss during a 1:1 -
“Why can’t I be global VP of operations?” What I didn’t understand is that I didn’t know what I didn’t know, therefore I only saw what I was doing right, not the plethora of things I wasn’t doing at all.
If you misalign compensation structures early on, you will pay for it in the long run.
Every company gossips. It’s a fact. Try motivating a team when someone runs a database query to find people working 80% less are earning 50% more.
These are the decisions a spreadsheet can’t calculate. How does start date factor into compensation structure? Does employee number 50 earn less then employee number 10 then employee number 2? At what point is scrappy replaced by scalable? When do you bring in operators? What is the effect that will have on the team?
As a founder CEO I face these questions every day. There is never an easy answer. You must keep the renumeration structure consistent. The VP of a 12 person company is not compensated the same as a VP of a 100 person company. The expectations are not the same.
You answer first to the company, then to the people, then for the product — and if you’re lucky — they all align.
