Molly Graham calls her approach to start-up compensation counterintuitive. Having joined Facebook (as Manager Culture & Employment Branding) at the point when the company had reached 400 employees but had not yet created any "official" compensation system, she had the chance to work with Sheryl Sandberg and HR Chief Lori Goler to change that. She emerged on the other side that experience as a reward champion, extolling the value of a "solid, standardized compensation system."
Now the COO of Quip, a mobile collaborative productivity site, Graham offers her set of counterintuitive Golden Rules for Compensation. I'm guessing that many of you won't find them to be that at all; rather, she's pinpointed some truths that are relevant and reasonable for any organization.
Graham's rules -- and my commentary -- highlighted below.
Golden Rule 1: No one is ever happy with compensation and compensation has never made anyone happy. Graham considers this to be the #1 compensation trap - believing that they can/should get people to join or stay at an organization based on money. "Compensation is not a healthy version of retention," she notes. "I know its terrifying when someone has a huge counter offer, or you're trying to recruit that senior leader from a big company, but you should accept upfront that it's better if they join for the people, buy into the vision, etc., and have to make a hard decision on compensation. They will stay longer."
Golden Rule 2: People always find out what everyone else is making. Completely true in a start-up and not infrequently true in many well-established organizations. Maybe not everyone, but quite often the people to whom they compare themselves. At least, Graham counsels, you should assume that this is the case - and she is right. "Never build a compensation system that assumes people won't know what their peers and teammates are making."
Golden Rule 3: Create a system that revisits compensation only 1-2x a year. This is a bit counterintuitive -- but an idea grounded in logic that is worth considering. Think about the time that is wasted on constant squeaky-wheel compensation conversations all year round. What if you "hard-baked" in the expectation that compensation is reviewed on a formal basis once, maybe twice a year? Could those of us in larger organizations get away with this, or does it work only in a fresh new company? I'm not sure but it is an interesting question. Graham's logic is that the specific and limited timeframe(s) for compensation conversations enable you to defer compensation decisions until the necessary research has been completed (or updated) and there is opportunity to consider salaries in context of peer and other relationships. No denying that much. "The moment you break the system -- even if someone has a higher offer from another company -- you undermine yourself and teach people that all they need to do to get more money is to ask for it or get another offer."
Golden Rule 4: On the spectrum between formulaic and discretionary compensation, be as formulaic as you can. I like that Graham pushes the idea of beginning every compensation discussion with a consistent message and framework. Before you start talking anyone -- be they a prospective new hire or a current employee -- she say, "you need to have a conversation about how your company thinks about compensation. Don't jump to the numbers, first explain the framework. That will start things off on the right foot." And when you do make an exception, she notes, make a HUGE deal out of it so that the person in question knows that you broke your system for them, that it's a rare occurrence and that it isn't likely to happen again.
Interestingly, Graham also believes that one of the best things you can do with new hires is not negotiate. "Negotiations on salary and equity can reward the wrong kind of people and the wrong kind of behavior." She points out that talented engineers, scientists and other tech people -- critical to many start-ups as well as established firms trying to push out their technological boundaries -- are often not strong negotiators.
What's your take on this start-up advice? Are there pearls of wisdom in it for the rest of us? Do some of Graham's recommendations make sense? Which ones don't?
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force, and Managing Partner of Altura Consulting Group LLC. Ann also serves as past President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
Image "Dollar Sign in Egg" courtesy of Kittisack/FreeDigitalPhotos.net