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Defining a compensation strategy is an important activity for all companies, including startups. The compensation strategy must be affordable, structured and reasonably competitive.
Your compensation strategy must be structured to best meet your unique business circumstances. As a startup, you may not be able to compete with large companies on salary. Therefore, you should consider a combination of options to attract and retain key employees.
Do not underestimate the value of the advantages or perquisites that your company has to offer that may not be readily available in larger companies—opportunities for interesting work, lack of hierarchy, flexible environment, and so on.
Some people are motivated by the desire to be on the leading edge of scientific or technological advances. They may take less pay to work for a startup if they believe in its future and the work it has to offer.
A salary (or wage) is a fixed amount paid in exchange for an employee’s services. Ontario Employment Standards legislation entitles most employees to receive a “minimum wage” in exchange for the work they complete for a company.
For full-time employees, salary is generally described in annual, monthly, bi-weekly or weekly amounts. For part-time employees, it is generally described as an hourly amount.
To determine an appropriate salary and/or salary range that your company is willing to pay for a position, you must:
Compensation can be divided into salary, benefits and incentives. While salary and benefits must be competitive, incentives are the most likely drivers of attracting and retaining the best employees in startups.
There are three key types of incentives: bonuses, profit sharing and stock options.
Commissions are a common way to remunerate employees (salespeople) for securing the sale of a product or service. The intent is to create a strong incentive for the individual to invest the maximum effort into their work. Commissions are usually calculated as a percentage of the sale of the product or service (for example, 5% of a computer component’s retail selling price).
Payment may be either straight commission (no base salary) or a combination of base salary and commission. In general, the commission structure is based on reaching specific targets or quotas that have been previously agreed upon by management and the employee. These targets or quotas are typically tied to sales revenue, unit sales or some other volume-based metric.