Congratulations – you’re on your way! You’ve developed the minimum viable product, raised funding and maybe even made a few key early hires. Now you’re ready to scale, and quickly. But wait, first you need to develop your company’s compensation strategy.

Why?

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1. Mission

Every company needs a compensation philosophy that supports the company’s mission and values. Without it, there is a strong potential for a disconnect between the mission and how employees are treated. We've seen this in the recent downfall of companies like Thinx and Nasty Gal where employee relations and compensation strategies fell short of the companies' feminist missions.

Leadership at every new company needs to decide what is important to them and how they will approach employee relations. And a compensation philosophy is a key place to start. Taking time to identify and develop this philosophy will ensure your company aligns its people ops with its mission – ultimately reducing employee dissatisfaction, turnover, costs and bad press down the line.

2. Start Early

“When Molly Graham joined Facebook, the company already had 400 employees, but there was no official performance or compensation system in place. There had been attempts, but nothing stuck. The result: Very little transparency, a lot of one-off compensation decisions, frustration and confusion.” [Source]

Identifying and developing a compensation philosophy early in a company’s growth will make you proactive, rather than needing to retroactively fix problems that have developed as you scaled rapidly. It might not seem urgent on top of everything else you’re prioritizing in early stage growth but trust me, it's much easier to standardize an approach to compensation when you have 30 employees than it is when you have 300.

3. Motivation

You should always approach compensation decisions with the mindset that this information rarely stays private. Employees will talk. At my last company, a disgruntled team member told everyone he made $20,000 more than he did – leading to frustration and resentment on his team. Wouldn’t you rather control the narrative?

Research shows that employees who understand the factors used to determine their compensation are overall happier, even if they are paid less. From Fortune “For one thing, it turns out that how people perceive their pay matters more than what they’re actually paid. Moreover, the more information they have about why they earn what they do, especially in relation to their peers, the less likely they are to quit.” [Source]

Demonstrating to your team that you have been intentional about how compensation is approached in the company goes a long way toward building trust.

4. Development

Building a strategy for compensation will give your managers the tools they need to use compensation to develop their team. If there is a collective understanding of how compensation decisions are made, managers can develop a plan for each of their team members of how they could advance in the company, both in responsibility and in compensation. This tool will make your managers better at developing their team, and will reduce turnover by enabling employees to envision their future with the company more clearly.

5. Fairness

Without a collective understanding of how compensation is approached by a company, senior management will make a lot of one-off compensation decisions that lead to pay disparities. Even if everyone at your company is on board with the concept of pay equality, simple decisions have the potential to derail that goal. For example, mindlessly matching someone’s previous compensation without evaluation can bring another company’s inequities into yours.

Beyond my personal belief that every company has an obligation to make sure each of their team members is paid fairly, few companies can survive the media storm that results in the revelation of huge pay inequalities, especially along lines of gender or race. Incorporating measures to evaluate compensation and ensure it's based on performance and achievement, rather than other, insupportable criteria into a compensation strategy protects your company against this. Oh, and, you know, it’s the right thing to do.

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Convinced? A fantastic resource to get you started is available from Homebrew’s Head of Talent Beth Scheer over here. And, of course, reach out if you want to discuss your company’s compensation strategy needs.

Lydia Bowers is an incoming Master's student in Human Resources at Cornell University. She has worked in Human Resources and Operations for high growth organizations for over five years, most recently at the Kosla Ventures-backed FinTech startup Ellevest, where she oversaw their People Operations Strategy as the team tripled in size. She consults on People Ops strategy for companies looking to build sustainable, people-focused processes to support rapid growth.