At Rent the Runway, We Trust You and Are Giving You a Raise

A couple times of year, nearly every company in the world asks its managers and employees to perform the dreaded ritual of giving performance ratings and doling out bonuses. Managers and employees typically struggle through this exercise — or do it in a perfunctory way — which leads to a process that’s riddled with inconsistency, inaccuracy, varying effects on morale, and superficial feedback that doesn’t translate into dramatically improved performance.

There has been massive evolution in the way we work over the past decades. However, how most companies reward and incentivize — a base salary plus an annual bonus target — hasn’t changed. No matter how much energy you dedicate to the review process, it feels like the work equivalent of a root canal.

At a startup, the bonus process makes even less sense. Startups by their nature are entrepreneurial — testing new things, launching new products and disrupting themselves. That’s why you join a startup in the first place — to create, to stretch beyond your current capabilities and to make an outsized impact. Without this “founder mentality” of passion and learning and continuous iteration, a startup won’t grow. But, the reality is, many entrepreneurial bets fail, or at least, have results that are different than plan. At Rent the Runway, we’ve had years where growth was higher or lower but in neither scenario was it related to our team’s effort. But then why is bonus compensation correlated with performance against OKRS? Doesn’t tying compensation to OKRS incentivize us to make safe bets and focus on short-term tactics that have a higher chance of being successful rather than setting more aggressive, harder to achieve goals that have potential to create long-term value?

Over the past year at Rent the Runway, we’ve hit substantial milestones as a company — record revenue growth, the highest customer satisfaction rating in our company’s history, innovating and scaling our new subscription service, Unlimited, and more than doubling our operation.

For this growth to continue here or at any startup, our employees need to scale at the same pace or quicker than the company’s growth. Tactically, even if I have the same title — “CEO” — throughout all of 2016, if the company has grown 100%, I (and everyone else in the org) need to ensure that I’ve personally scaled 2X. As leaders, we’ve all seen the painful effects of team members not keeping pace with company growth — it’s called up-leveling and it’s all too common when a company goes from zero to something to hopefully an IPO.

At Rent the Runway, as we’ve thought about how to grow, the big unlock was that we have to improve the ways we give and receive candid feedback. Real-time feedback and coaching promotes learning. When feedback is connected to compensation, feedback is muted, distorted and given less frequently. Our goal is to create a safe place where feedback is about learning and growing and not deducing someone’s contributions to a single rating or annual performance review.

Last week at Rent the Runway, we decided to rip up our old ways of thinking about compensation. We’re doing something on the surface that seems bold, but really just makes sense: we’re getting rid of annual bonuses and giving everybody a raise (effectively guaranteeing what would have been bonus as a part of salary).

Why?

• One of Rent the Runway’s core values is “Trust in Everyone’s Best of Intentions.” We trust our team. We know that money doesn’t drive our team’s effort and passion — mission does! We are here because we want to have massive impact on our customers, on RTR and on our own careers. For an already motivated, entrepreneurial team, using bonuses as a stick (i.e. if you don’t hit this goal, then you don’t get your bonus) stands against everything we believe in and is actually de-motivating. This has been well researched — watch LINK HERE.
• We are here to build a disruptive, game-changing business that is around in 50 years. Therefore, our work needs to be long-term strategic, not short-term tactical. We obsess over the details here — which means we have goals, roadmaps and big plans but we also don’t want to be short-sighted. We got here by seeing into the future and we want every person who is on our team to have that mindset around long-term value creation — not what will drive individual compensation in the short-term. Simply, the only reason to hire smart people is to rely on them to be strategic, be comfortable with failure, and try and try again to build something huge.
• We need to separate the process of feedback from compensation. Whoever decided to couple these things many years ago did us a disservice. For all of us who love and believe in the potential of our teams — it seems unnatural to be pointing out someone’s flaws at the exact moment you are advocating for their compensation. It’s a bizarre juxtaposition that naturally stifles authentic feedback. By just untangling the two — we believe we have an opportunity to unlock the most authentic, constructive and transformative feedback for everyone at our company.

We’re excited to have made this change at Rent the Runway and we’re committed to it. We believe that we finally have a compensation structure that is reflective of our core values, realistic to being a high-growth startup and is authentic to the types of team members we hire, promote and celebrate.