How to do company wide salary raises at a startup (for the first time).
There aren’t a lot of people who really like to talk about money. Both employer and employee often find it an awkward yearly strategic dance-off where both parties leave the dancefloor unsatisfied. This is a pity, because I believe that a salary raise — when done right — is a really powerful tool.
At Blendle, I started with building a good and solid feedback cycle, so salary raises were next. I had the privilege to guide the process of doing the first company wide salary talks at Blendle. I just wanted to share what I’ve learned doing it.
Let’s start with a few brainfarts which I kept in mind during the whole process. I would advise you to do the same.
- Why raise salaries?
Retaining talent: because people develop and therefore increase in value. Fairness: because roles expand and change and, for example, come with more responsibility.
Reward people and keep them happy: put your money where your mouth is.
- It’s not about money. It’s about acknowledgement, reward, trust and perspective. Money is the currency though.
- For a lot of people, talking about money is awkward. Make sure you get comfortable talking about it as an employer.
- When it comes to money, it is really important to be trustworthy. Be transparent, open and honest when it comes to this topic. Also be really clear. Yes is yes, no is no. No vague promises.
Alright, with that in mind, let’s get this party started. I’ll describe the process in 6 clear steps.
1. Gathering intel
Simply ask around. Start with your colleagues. What raise would you think is fair when somebody did a good job? What do you think is most important when handling this topic? What are you used to at your former job? What do you expect this year? I was surprised how open and honest everybody is on this topic.
After that I started asking around in my network, both professionally and privately (yep, just ask your uncle at that awkward birthday party). It helped to get a feeling on the spectrum. It gives context. It also helps to get comfortable on this topic.
2. Compensation Philosophy
Now you know what your people expect and what people and companies around you do. With that in mind, it’s time to decide what you (and your company) want. The fancy term is coming up with a Compensation Philosophy.
What do we have to spend, what is the range?
Where do we want to position ourselves in the market (below, average, above)?
How are we going to determine who gets what, what we take into account and who is involved?
This is the short version, which I used.
3. Build a framework
So now you know what you have to spend, where you want to position your company (and why), what your people expect and you have an outline of what you want.
Next up is building a framework you can start working with.
I made a straightforward excel, looking like this:
Columns B, C and D are just the the Name, Position and Full Time monthly salary for all your employees.
It gets interesting at column F-I. Here is where you find the variables we decided to base our raises on. You can vary this of course, based on what you think is most important. There is no one-size-fits-all. You might even want to vary per year (we will). I would recommend not to overdo this, because you want to be able to explain it to everybody. That can be hard when using 7 different variables.
Here are the 4 variables we chose:
How long are you at Blendle and how long is it since you had a raise? On paper, people who are in already for 2 years, developed more after their chance to talk about money than someone who’s in for 2 months. At Blendle this was the first round of raises, so this was an important variable to take into account.
- Level of the role and responsibility:
Being a startup, people continually take up new responsibilities. When this happens, we always try to compensate fairly. But most roles are gradually developing, because of the good people in that role. So there is not a very clear moment when that role changes. That is why we took this moment to take a good look at all the roles and responsibilities someone has and see how this developed over time.
- Benchmark: are you being paid fairly compared to your peers, both in- and outside the company?
External benchmarking is hard. It’s hard because not every job title is the same role and not every company values the same things (for example a Bachelor or Masters Degree). I would recommend to just get as much information as you can. There are some good benchmarks you can find on the interwebs. Problem is that they usually have quite a big range (40–60k for example). Tackle this problem by asking HR colleagues at companies like yours (in terms of scale and money) about certain positions. Focus on companies like yours, where the people you are trying to retain probably would also like the work. It’s a war for talent ladies and gentlemen.
Internal benchmarking is easier, but it takes time. I just made an excel and started asking team leads if they thought someone was in the right spot compared to the rest. Do this with enough people and you’ll get a good enough picture you can work with.
- Input Team lead and Management Team.
This is the fun part. This variable reflects how we think someone is doing.
I asked all the team leads to advise the MT on what to do and why. They also had the chance to add any additional advice (this woman is freaking great, we have to keep her, no matter what). With that input, I sat down with the MT and we went through every member of Blendle. 99% of the time, we agreed with the advice of the team lead.
4. Work the framework
Now you know what information you have to get, where to get it and how to digest it. So let’s get to work. Oh, first take one step back and take another good look at step 2, the Compensation Philosophy.
At Blendle — being a startup — we have to think about every penny we spend. We don’t want people to work here for the money, but we also don’t want people to leave here because of the money. So we ended up with slightly above average. We decided that on every variable, we could give 0, 1, 2 or 3%. The 3% would be in exceptional cases. The total average would be around 4% (1% on each variable), which matched the budget and business plans.
To be able to fill in all the variables you need information. Some of which you might already have, some you need to go and get. That is up to you.
5. Check it: is this right/fair?
Okay, you got your input. Let’s fill it in and check it. As an example I used the framework and for 3 fake employees. Piet, Michelle and Mohammed.
As you can see, Michelle is here the longest (2%), she is compensated based on the benchmark (3%) and is doing a really good job (3%).
Piet is doing an okay job (1%). He is a year in (1% on loyalty), was hired as a real junior and he did step up his game (2% on level). He got a 3% on the benchmark, because he was at minimum wage. Typical in HR of course… ;)
Mohammed just joined, so he has just been benchmarked and nothing happened/changed enough to add something to his salary at the moment.
The last columns at the right are where it gets really interesting. You see the eventual percentages and the actual number that comes from it (when multiplied with FT salary). The problem with percentages is that the rich just get richer. So at the end we went through all the names again to see if everybody was treated fairly. In this example the difference between Piet and Michelle is small in percentages, but big in terms of actual money. We would probably add something to Piet’s raise.
It’s also really important to end with an internal benchmark with the new salaries. Did you reach your goal? When you’re happy with it, we can get to the good part. The last step is giving the raises.
6. Execute: give raises
Besides the actual number, the way that number is delivered is as important. We (CFO and HR) had a meeting with everybody about his/her raise. We took the time to explain why and how we got to that certain number. We started with explaining where Blendle stands (financially) and how we want to compensate our people (slightly above average). We explained the different variables and the weight of the different variables. We ended with saying the number we came up with for that person.
Some people wanted some more background or the exact ratings per variables. Some people were really happy and weren’t interested in the details. It varied. My advice would be to take this very seriously and not just think of it as an ‘FYI, bye’.
During the talks I made notes. I’ve put a smiley (:D :) :| :() in my excel with the name to rate the happiness. In some talks we noticed we didn’t meet the expectations of someone. In some cases we talked about it and agreed at the end. Some cases we followed up with another (or even two) conversations.
At the end, all the smileys made a pretty good overview on how it went. With ~80% of the talks and raises we’ve hit bullseye. ~15% was okay, not happy, not unhappy. ~5% of the cases needed a follow up.
The last step is the administrative part. Being an HR person in a start-up, you’ll probably be doing that too. Good luck with that ;).
Some last thoughts:
- You can be wrong. After all the work you’ve put in. There is a possibility you are wrong.
- Rewarding good people in your company is always cheaper than hiring new ones.
- I would recommend to make this a broader conversation. Salary is not only about money in the bank. Think about equity, benefits and training & development.
- A good performance review is key to a good salary raise.
- Salary Raise conversations should be detached from Performance Review conversations. That is a different talk. Salary raises do reflect how someone is doing and that is how people will interpret the raise (or not raise). Make sure the Performance Review is in line with the raise, especially when someone isn’t performing as well as they think.
- Salary raises tie in to every other aspect of your HR work. In an ideal world you would have clear job and role descriptions. A good, clear structure to promote people from junior to medior. And a solid salary house. Being a startup usually means you don’t have this. This doesn’t mean you have to ‘improvise’ the salary raises too.
- We told our people we want to do this once a year. This way you don’t have to deal with 80 conversations over a year, but you have it all at once. Of course, there are exceptional cases where you will feel the need to discuss again.
That’s it! I’m really keen to hear what your experiences are with this topic. Ideas and tips are also really welcome. Feel free to shoot me a message email@example.com.
PS big thanks to all my Blendle colleagues who helped me during the process and with putting this piece together.