Compensation is important, don’t wing it.

Standardized compensation helps you plan better, pay your team fairly and preserve cash and equity runway. That’s why we built Hiringplan.io.

Hiringplan.io is the latest release from the LTSE product team, a free, easy-to-use headcount planning tool with built in compensation market data. Click here to check it out. Read on to learn why we think it’s useful.

Compensation is the ‘dark family secret’ of startups. It’s highly personal, high-consequences, and not for polite discussion. Getting compensation right is tough, especially in the early years.

Despite a high degree of transparency across the business, there is typically very little transparency in how a startup approaches compensation. Despite many examples of rigorous planning across the business, there is often limited compensation planning. Despite the importance of strategic thinking, each negotiation with a prospective employee is often tactical, optimized solely for closing the candidate.

Negative effects include unequal pay for the same work, favoring of strong negotiators, over-allocation of options to early employees, drawn-out comp negotiations, and thoughtless depletion of vital cash and equity runway.

Compensation is your startup’s greatest expense. It’s core to your company and to your employees. Don’t wing it.

Eventually all successful, later stage startups do move to a more systemic approach to compensation. Salaries begin to climb and with more employees and more hiring comes a greater need to control costs. When you reach this stage you need to strike a careful balance between competing for talent and conserving precious cash and equity. The four key components of this shift are:

1. A compensation philosophy. This is a values driven conversation. What is your position on remote workers versus a co-located team? To attract talent, are you prepared to pay above market cash, or offer above market equity instead? To preserve runway are you prepared to enforce a salary cap? Will you reward people who opt for less pay by compensating them with more equity? Your comp philosophy should be a business decision adapted to the needs of your individual company, and the values you hold as a founding team.
2. Access to compensation market data. It is no longer legal in California to ask a candidate their prior salary. The talent market is highly competitive and without good data you are at a competitive disadvantage. However, this data is not always easy to come by. There are various paid services that offer high-quality market data, either in the form of spreadsheets or online tools. Venture funds sometimes purchase and offer market data as a benefit to their portfolio companies.
3. Tools and processes for long-term planning. Again, spreadsheets are the most common tool for compensation planning. Powerful and flexible for specialists, but not so much fun for non-experts. These models serve a wide variety of needs from headcount planning, to budgeting, to reporting to the board.
4. A standardized hiring process and offer structure. Expanding startups need efficient processes for sourcing, screening, interviewing and closing candidates. A sloppy or impersonal process can also be a real turn-off for the person you are trying to hire.

“You can’t be transparent if you’re not paying fair, and if you are, there’s no reason to not be transparent.” — Molly Graham.

Positive effects include fairer pay, fairer distribution of equity between earlier and later employees, simplified comp negotiations, and thoughtful consumption of vital cash and equity runway. A structured approach also helps streamline long-term budget planning and scenario modeling.

Essential for later stage startups, we believe that there are also huge benefits when earlier stage startups adopt a structured approach to comp: Plan better, negotiate cleaner, know you are paying your team fairly and know you are spending your cash and equity runway wisely.

There are also huge benefits when earlier stage startups adopt a structured approach to comp.

This is why the product team at the LTSE created Hiringplan.io, a free, easy to use headcount planning tool with built-in market data. It’s now easier than ever to start adopting these smart business practices, even from day one in the life of your startup.

Hiringplan.io scenario showing cash and option pool allocation at the top.

1. Philosophy. You still need to have the conversation, but Hiringplan.io makes it easy to understand the cash and equity impact of the different approaches you explore.
2. Market data. A high-quality market dataset comes free with Hiringplan.io. Adding each role, level, location and start date takes a few clicks. The current market cost of each role is added to your plan automatically.
3. Planning. Instead of staring at a grid of numbers and copy-pasting in a spreadsheet, Hiringplan.io is a dedicated visual tool that makes it easy to build and quickly modify your plan. Easily tune headcount, levels, start dates and employee overhead. See in real time how these changes impact your cashflow and option pool. Copy and explore unlimited scenarios and share with your co-founders and team.
4. Standardization. In addition to adding future employees to your plan Hiringplan.io also allows you to add existing employees and to record each employee’s actual salary, equity, gender and ethnicity. This enables two powerful reporting features: Diversity & Inclusion and Scorecard. These let you monitor for under representation or unequal pay in your existing team, and how closely you are actually tracking to your comp philosophy.

Big shout-out to our partners Connery Consulting, providers of the high-quality compensation data that comes bundled with Hiringplan.io. Read more about the team, their dataset and how they like to work in this post: Data by Connery — The people behind Hiringplan.io’s market data.

Further reading

The first version of Hiringplan.io was inspired by this great article by Molly Graham, ex Facebook and Quip.

Learn more about Hiringplan and other tools from the LTSE.

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