Startup CEO: A Field Guide to Scaling Up Your Business, + Website

CHAPTER TWELVE

COMPENSATION

One of the most important—and most contentious—parts of any CEO's job is managing compensation. There's an art to determining compensation, especially for startups with limited resources. Nonetheless, following a transparent set of guidelines will help you make fair, informed decisions. Individual pay can and should be private, but compensation criteria should be very public.

GENERAL GUIDELINES FOR DETERMINING COMPENSATION

Above all else, it's important to keep the following universal truth in mind: most people, most of the time, feel undercompensated.

There's almost no getting around it: good and bad employees are equally likely to think that they deserve a raise. The only thing you can try to do is make them feel less undercompensated, and to remember a corollary that should play a large role in how you determine compensation: higher pay doesn't guarantee higher engagement. If people feel severely undercompensated, you'll lose engagement. It sounds like a catch-22, but it's really just a balancing act.

To maintain that balance, use the following guidelines:

1. When negotiating compensation with a potential hire, ask what they expect early and often. For senior hires especially, be sure to do this really early in the process to screen out mismatches before you fall in love. I've interviewed some great candidates before for senior roles, only to find out that their last job paid them 50 percent more than I could afford!
2. Make sure your top performers are ...