Hey Startups! Tomorrow IS too late!

We’ve all heard the phrase “It’s never too late.” I am sorry to tell you that everyone has been wrong. As it turns out when it comes to compensation issues, today may not be too late, but tomorrow almost always is.

One of the most consistent and pervasive issues that I deal with is helping companies fix what they didn't do (or what they didn't do correctly.) This is especially true with small companies who often don't have a dedicated compensation professional. The problem may come to light when a key employee is lost, but it is often identified far earlier then lost in the shuffle of focusing on day-to-day business.

If you haven't gotten started on your compensation philosophy, structure and long-term incentives, please get started when you finish this article.

The repercussions of waiting can be expensive, time-consuming and distracting at the exact time your company is hitting its stride. First, every company should understand its approach to compensation, often referred to as a “compensation philosophy.” Your philosophy should define why and how you plan to pay people.

If your goal is to align your employees to investors through equity compensation, you need to act immediately. If you make promises or even suggestions regarding equity that are not formalized concurrently, you are likely to find yourself delivering compensation that meets no ones expectations. Even worse you may find expectations so high, that satisfaction borders on impossible.

It no longer surprises me to have a group of 8 or 10 key employees earnestly explain how each should receive 15% of their employer’s stock. It no longer surprises me when an owner or founder believes that they are doing something great by rolling out a new program only to find out their staff was imagining something far greater. I have seen companies lose great employees. I have seen companies pay huge mediated settlements to staff members whose understanding differed from their employer’s. I have seen companies deliver compensation programs so late that any chance of gains were lost before they got started.

Are you still reading? Have you made a note to get started on fixing your compensation today?

I know you have incredible employees that are passionate about the success of your company. I know they have bought into your vision of a successful future. What I also know is that they expect things to be formalized, finalized and actualized. Every day you wait, your employees’ passion and hard work will build value in their minds faster than your company can keep up. While it may “never” be too late to get started, I promise you that “never” refers only to today. Tomorrow IS too late.

Dan Walter is the President and CEO of Performensation and is focused on the needs of small and mid-sized public and private companies. Dan is working with fellow Compensation Café writers, Ann Bares and Margaret O’Hanlon on a new book due later this year. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Comments

[John A Bushfield]

Dan - As a veteran of multiple start-up companies, the issues you describe are indeed real. That said, it's really more of a communications problem, rather than a compensation issue. Startup CEO's have typically not attended CEO school, and they sometimes fail to understand the power of off the cuff comments they may utter when among their employees. I've seen it time and again; CEO's sitting down with employees and unknowingly making commitments they didn't realize they were making. Deliberation, clarity and a written agenda with scripted comments goes a long way in preventing the unintentional blurb that could very well seriously bruise their credibility.

[Dan Walter]

John,

I totally agree. In fact, fellow Comp Cafe'ers Margaret O'Hanlon, Ann Bares and I are putting the finishing touches on a new ebook titled "Everything in Compensation is Communication."

Whether it's inadvertent commitments, programs intended to do one thing, but designed to something totally different, or just simple avoidance of the issue, communication and compensation are tied to this particular type of failure.

Thanks

[Cynthia Kincaid]

From childhood for any work we say we will do it tomorrow....but tomorrow never comes.