Just Lunch: The Compensation Conversation
Big topics, made bite-sized.
How do startups and scaleups decide how they want to compensate their team members?
It’s a tricky question, that’s for sure. The compensation roadmap for young and growing teams seems to either be rocky or non-existent. Few startups have a Head of People or HR Manager that has extensive experience in building a total rewards program for team members. Very few tech founders and CFOs have a compensation background.
I felt it was time to have a real discussion about this crucial but often misunderstood topic. So I sat down to lunch in Paris with Join’s Organizational Development Coach, Jennifer Diamant Foulon, and Krystall Fierens-Lee, Proxyclick’s 3CPO (Chief People, Passion and Performance Officer). They have 20 years of combined experience working alongside dozens of growing Europe-based companies with teams ranging from 10–150 employees.
Here are some of the questions we challenged each other with:
- What kind of data is available about US vs European startups and compensation?
- How should compensation, or Total Rewards, evolve as your business grows?
- How can perks & benefits be seen as part of your Total Rewards strategy?
Compensation in Europe: What’s happening?
Up until the last few years, we haven’t had much data available across Europe regarding employee compensation in startups. Luckily, that’s now changing. Krystall and Jennifer both share an aversion to using enterprise or US-based data for European startups and SMBs to benchmark fixed salaries.
“The US is a reference for Europe, but it doesn’t mean we should replicate. Europe is a 2 tier salary market — Paris/Amsterdam/Berlin/ UK vs Madrid/Dublin/Lisbon. With some surprises too. I recently saw Ireland and Poland with similar salaries, and there was a Brussels and Barcelona alignment.”
A compensation approach of fixed salary plus equity remains the standard in Europe, with growing sensitivity to cash management after the pandemic, which lengthened some enterprise sales cycles. That means cash is on everyone’s minds.
Combined with the fact that candidates are increasingly prepared for rewards discussions beyond fixed salary and equity, it’s a great time to look at more than these two areas of compensation.
That brings us to a more strategic and sustainable approach of breaking down compensation and rewards.
Beyond fixed salary and equity
“Let’s first visualize Total Rewards as the overall umbrella,” Krystall offered. “Breaking that down, we have three compensation components — fixed salary, equity and variable compensation — plus a fourth component of perks and benefits.”
As mentioned above, fixed salary and equity are usually the focus for the first 15 hires in a company. But data supports the implementation of variable compensation and perks and benefits a lot sooner than you might expect.
Implementing systematic variable compensation
Our conversation then turned to variable compensation, of which there are 4 types:
- Commission (sales)
- Bonus for project team performance — requires team goals
- Bonus for individual performance — requires individual goals
- Discretionary bonuses and retention bonuses
According to Krystall and Jennifer, many European scaleups and SMBs still see variable compensation as being “only for salespeople”. Variable bonuses for non-revenue-generation staff are often an idea for when the company becomes profitable.
Jennifer warns that waiting to create variable bonuses when the company is profitable means you might lose key people who would have stayed if they had access to a modest performance-based bonus opportunity. She reminds us that people often leave for as little as 20%, and then it costs 50% of an annual salary to find and train a new person.
2020 and 2021 data also indicates that top performers really value performance-driven variable bonuses — even as little as 8% is meaningful to first line team members.
This is why Krystall and Jennifer try to nudge founders towards systematic variable bonuses — not just spontaneous ones. Variable bonuses can help fight employee attrition, bolster team culture and create more accountability by driving people towards a pay-for-performance and loyalty-driven culture.
To get more on this subject, we reached out to Erica Rodrigues, Head of People and Culture at Prodsmart.
“More and more candidates are expecting variable bonus payouts, discussed quarterly or even monthly,” Erica said. “It’s essential to set clear expectations, be fair and manage the time spent on this topic.”
So, how can teams implement variable pay models?
Krystall recommends considering variable bonuses as soon as you have a Team Lead or Project Lead layer. “People leadership implies a bigger commitment to the company purpose, products and people,” she said. “People Leads should have a variable bonus based on team results and behavior linked to company strategy and values.”
Jennifer has seen successful implementation of quarterly or mid-year alignment meetings between Managers or Team Leads and their people in mid-sized startups. “Start with quantitative and qualitative goals, and a discussion around progress, learning and next steps,” she said. “This doesn’t have to be full on performance management; it’s more about balancing accountability and recognition so that you are not slowing your company’s growth.”
This would also help founders reduce the instances of discretionary bonuses and “Founder Flounders”.
“Retention bonuses and spontaneous discretionary bonuses to keep people onboard sort of took over in 2021. It was really frustrating,” admitted Krystall.
Jennifer refers to knee-jerk moments of panic-and-take-out-the-checkbook as “Founder Flounders.”
“The key is to resist panic as you experience anger or the feeling of betrayal,” Jennifer said. “These kinds of emotions can derail the most clearly planned compensation approach.”
This leads us to the fourth and often overlooked Total Rewards element.
The superpower of perks and benefits
Our C3PO, Krystall, had a lot to say about building a culture and linking it to perks and benefits.
“The trend towards unlimited holiday is a perfect example of the interplay between culture, perks and benefits, and rewards,” she said. “Unlimited holiday is strong proof of a high-trust, highly flexible environment, and it’s a benefit that translates into real value for the employee.”
Some other popular perks and benefits include:
- Onsite workshops on different technical and team leadership topics
- Regular free lunches or a stocked kitchen
- Weekly drinks, with at least one member of senior staff attending so people have access
- Direct-from-farm grocery baskets delivered to team members to take home
- Philanthropic or volunteer work projects that involve people across functional teams
- Regular team events to bring remote team members into the office, travel paid of course
- Quarterly, semestrial or annual off-site work trips that include socializing
- Unlimited holiday
“It’s worth taking a deeper look at your team’s full experience when deciding your total rewards strategy,” Krystall said. “We often think of remote work trips, team-building events or free lunch as ways to strengthen culture. But these benefits, which are part of team culture, are also strategic and should be part of the Total Rewards system. Perks and benefits should reflect the values and cultures Founders have devoted themselves to building.”
We concluded our lunch with a strong recommendation that founders include Total Rewards strategy as part of their plan to scale. Fixed salary, equity, variable compensation and perks and benefits all support a startup’s growth culture. If new team members are to be as motivated as those already onboard, everyone needs their piece of the pie.
Many thanks to Jennifer and Krystall for a delightful lunch. Bon appetit!