Wages for Startups Employees

You cannot rely exclusively on benchmarks and market practices, so you will have to build grids of compensation across your company. For each type of position (“tracks”), you should have a dedicated grid. You’ll end up with grids for sales, developers, product managers, etc. 

The bigger your company, the more tracks you will have (eg: data scientist, buyers, account managers, etc.). These grids should reflect market compensation, becoming efficient proxies between two compensation benchmarks.

Buffer, being a distributed team across the world, had to make sure they were competitive with the local market practices and keeping a fair formula for all their employees.

To build their grids, they designed a transparent salary formula, which has the benefit of making the salary readable and objective (let alone the experience which is discretionary): Role * Experience * Loyalty * Choice

• First, employees are very impacted by differences of salary within their peer groups.
• Second, this effect does not happen when employees learn that their managers and boss earn even significantly more money than they do.

The key is to think in term of fairness (same salary for the same responsibility, and never forgetting that employees care mostly about their standing in a specific reference group — their peers), which does not hinder you from using money as an incentive to get a promotion.

The main trade-off regarding wages is the split between fixed and variable salaries. The rule of thumb is to give 20% of the fixed salary in variable. In the US it is on average 50–60% and can go up to 100% in certain companies.

A good variable policy is a management lever to (1) link individual contributions to the overall strategy of the company, (2) catalyse everyone’s outcome (by increasing motivation), (3) fill the gap between market practices and the actual outcome.