Salary reviews and raises in startups — everything I’ve learned about the topic no one talks about

13 min readFeb 5, 2021

Salary reviews. Not the easiest of the topics to approach or deal with, especially if you’re a startup founder still trying to grow your business and retain the best people on your team. Striking the right balance is hard and salary conversations are tough. Whether you’re the one deciding on salaries or bonuses, asking for a pay rise, or communicating the decision.

Start with The Why

Though the question we should ask ourselves (before diving into this meaty topic) is — why do we bother with salary reviews in the first place?

We’re all aware that replacing an employee is extremely costly, it can be as high as twice their base salary. But the way I see it is simple:

Your startup grows and so does your team. They learn, develop their skills, manage more staff, take on more responsibilities, sometimes more risks, and so they should be rewarded for it.

Of course, one might argue that anyone choosing to work in a startup is there for the opportunity and not the cash. But having read through a handful of startup-focused articles, it looks though as money, insufficient salary and a better offer — are still some of the reasons people leave (even) startups.

Surely this is not (and should never be) just about the compensation. There are countless other reasons why employees stay, or leave. Leadership (or lack thereof), culture fit, transparency, communication, recognition, company mission/vision alignment, challenging environment, people, opportunities to grow, learn, be creative, autonomous, the list goes on.

The point is, investing in your team brings tremendous benefits to your startup business, and its customers. When you acknowledge and recognise your employees’ efforts (though it doesn’t always have to be monetarily), they will feel appreciated, more motivated, engaged and happier.

And we all know:

Where did it all begin?

Whilst supporting the founding team at GoSquared as their interim Ops Lead and Advisor, it became clear that they needed some structure in place for salary reviews and raises.

When they were a smaller team, they got by without a process (like most of earlier stage founders), but once their team has grown and they started to have team members (not founder-level) manage other people, doing things ad hoc wasn’t really an option anymore.

They wanted a process, a framework, something solid they could use going into 2021. And so around November last year, I began my research on salary reviews, salaries and bonuses at SMEs and startups.

Ask every person you know (or don’t) for advice

I started my research phase by first reaching out to anyone I could think of: my network on Linkedin, communities I’m part of, such as the Ops Stories, YENA, Ada’s List, as well as my personal network of peers, friends and ex colleagues (who may have a thing or two to say about this topic).

From the back of that I scheduled calls and spoke to several SMEs and startups to learn how things were being done on their end.

My only reference point prior to this was Buffer, and how they’ve introduced an entirely transparent approach to salaries for all their employees. But now, I’ve gathered a bit more intel — thanks to some great people in my network.

Everything I’ve learned

When should you review salaries?

The story seemed to be pretty similar across most of the startups I spoke to:

Everyone starts reviewing salaries on an ad hoc basis (typically a year after a new joiner starts).
But as the team grows — usually to 15+ employees, companies decide to sync them all up once a year.
And sometimes even align them at the start of the financial year so that salary reviews become part of the budgeting exercise by the department heads.

At GoSquared, the employment contract states that your “salary will be reviewed no less than every six months” so you can imagine the messiness of doing these on ad hoc basis for every team member, twice a year.

The next big question was, of course…

How do you review salaries and decide on who gets a raise?

Sifting through multiple Quora posts, as simple as it may sound, I found this rather helpful:

[When deciding on a salary raise] you need to take three factors into consideration:
1. The revenue increase of your startup,
2. The revenue targets, and
3. Your base salary.

Striking the right balance between retaining the best people with salary raises and making sure that it doesn’t hurt you financially in the long run — is certainly not an easy task. Having said that, one cannot always expect to have their salary raised if the company as a whole is not performing well, or if the team isn’t reaching company-wide (financial) goals.

Frameworks

During my search, I liked the look of two frameworks — one of which I was already familiar with from CharlieHR having read their extensive blogs on the Progression Framework.

The other one I found on Medium by Roland Grootenboer (who is part of People Ops at Google and was Head of HR at Blendle) — which is when he shared his framework. You can read his original post here.

Charlie’s Framework

Charlie’s approach was to build a compensation calculator to align salaries to roles across their Progression Framework levels which they have 6 of. They have also added a multiplier effect so that every time a team member goes up a level, their salary increased by a larger %.

However, to build out this model for your own team,

You need to have the Progression Framework in place (which I strongly recommend you do either way), and
Then you need A LOT of industry and market data to benchmark salaries for each role across every level, (not to mention that these benchmarks are also likely to go out of date pretty quickly).

Blendle’s Framework

When at Blendle, Roland used 4 variables and an input of 0–3% for each variable to decide on the maximum salary increase percentage for every individual on their team. These variables were:

Loyalty — which asks how long has this individual been at the company and how long is it since they’ve had a raise? E.g. If someone has just joined the company, they will get 0%.
Level of the role and responsibility — asks whether the role and responsibilities of this individual have changed and developed since their last salary review? E.g. If someone started managing a team member and took on more projects out of their scope, they will get 2%.
Benchmark — asks if the individual is being paid fairly compared to his/her peers, both in- and outside the company? E.g. If someone is on a minimum wage (hopefully not), they will get 3%.
Input Team Lead and Management Team — asks the team leads to advise the management team on the individual’s performance, and add any additional advice. E.g. If someone is doing an exceptional job (and we can’t lose this person), they will get 3%.

I later found out that Rolls Royce (yes, I know — far from a startup but I thought it was interesting to factor this in for a wider comparison), use only 2 variables when deciding on salary raises: benchmark and performance, which brings me on to the next topic…

Performance Reviews

Without doubt performance reviews sit at the heart of deciding on who on the team gets a salary raise, and who doesn’t.

As I discovered, each company will have their own assessment criteria or format for performance reviews. For instance:

At MagicLab (now Bumble) performance reviews are run twice a year and consist of (amongst many other things) KPIs delivered, manager comments and a tick box for promotion.
At another fast-growing SaaS startup, aside from performance KPIs — culture alignment and impact across the business are high on the assessment criteria.
Jetstack used to have an even more thorough assessment criteria for performance reviews. They reflected their company values to things such as productivity, proactivity, commercial awareness, community engagement, and many many more.

However, as the headcount grew at Jetstack, they realised they had to tweak criteria for different teams to make them more relevant, and if no one was managing it — it soon would go stale. They are now implementing “levelling” (i.e. Progression Framework) for their team of 30–40 people and will only do annual reviews going forward.

Benchmark

After performance, benchmark is perhaps the second most important variable to consider when deciding whether someone’s salary should be higher or not.

If you recall from above (and as explained in their blog), CharlieHR sifted through various websites such as LinkedIn, Glassdoor, Indeed and many other, to find out “market rates” or industry average to build up benchmarks for a junior, entry-level and director level hire for every job at Charlie.

That’s a lot of work, so if you want to take a slight shortcut for your team (something that I did at GoSquared), I suggest that to begin with, you only focus on the roles at your company (and not every level of the Progression Framework).

To make your lives a little easier, here’s a list of websites I used and found useful for benchmarking salaries:

Linkedin
Payscale — Average salary for startup employees
Glassdoor
Adzuna
Indeed
Angel — Startup salary & equity
Otta (new players in the market with focus on tech and startup industry)

And a few other sources that were recommended:

And when you use sites like Linkedin or Indeed, always remember to filter as many categories as you can, e.g. industry, company size, location etc.

Lastly, I would recommend to use at least 5–6 sources to get an average benchmark for a particular role. And only repeat the process if and when the employee “levels up” against the Progression Framework (as then her or his job title is also likely to change).

How much should a raise be?

Now that you’ve identified who deserves a raise and what the industry average for the role in question is, how much should you raise it by?

I spoke to Deion from Mercer, who took a few steps back when discussing this topic with me:

“Compensation strategies will vary depending on the stage the business is in, as people will also expect to be paid differently.”

Salary increase percentage will also depend on the country and inflation, e.g. in Argentina or Turkey the medium salary increase is 16%.
For the UK — medium in 2020 was at 2.9% for all employees (including executive and management level), with 2.8% projected for 2021.

Of course, this data is taken across the entire working population in the UK, because when I spoke to my peers in the tech startup world:

An average salary increase seems to be much higher, 8–10% for someone who is performing very well.

But again, this can vary greatly according to the nature of the industry, even within tech.

What about the bonus?

Ben Gateley from CharlieHR was incredibly helpful when I reached out to him for some advice around bonus schemes:

“What behaviour do you want to drive with a bonus scheme? Make sure it incentivises the right behaviours.”

Here are a few other tips I’ve collected:

Keep bonus scheme transparent so that everyone in the company knows the % or the amount at each “level” they can get, or everyone gets a bonus which is the same percentage of their salary.
If bonus is tied into company’s performance and the business isn’t doing well, cutting bonuses is the worst thing you can do (especially if you want to retain good people) as it will become incredibly demotivating.
If you have extremely high bonus structure with tight performance deliverables, standards will be kept very high, and thus will naturally rule out the poor performers on the team.
Bonus should be a top up when it comes to compensation, a nice to have.
Don’t offer discretionary bonuses, always have them in writing or contracts.
Keep it simple.

Other useful tips

As my friend and fellow LSE classmate Ann Roberts (who’s had an incredibly impressive career within the world of HR and has recently joined Flo Health as their Chief People Officer) has put it:

“Having two salary reviews a year doesn’t mean you have to give a raise every time.”

I couldn’t have agreed more.

My good friend Dan Farley, VP Customer Success at Seenit also gave me great advice when discussing salary raises with your team members:

Dan (he doesn’t know I stole this from his WhatsApp profile)

“Be transparent. You cannot always match industry standard salaries depending on many factors (company maturity, size etc.) so having a proper structure and expectations around that are key.”

I.e. Be open about what the industry standard is and what the company can afford at this stage due to e.g. limited budget.

And start budget planning a few months before your team is up for a salary review so that you know exactly how much you can spend on salary raises.

Dan also provided me with an interesting insight that the:

Cost of your Customer Success team (including everyone’s salaries) should never exceed 10% of the annual revenue.

And if you are way above 10%, you are essentially running a financially poor CS department. In other words, you have either over-hired or over spent, or possibly both. It would be useful to have these sort of benchmarks for every department which would make your budget planning a lot easier.

Matt Barker, co-founder of recently acquired Jetstack, simply asked me:

“Can you offer equity in lieu of higher salary rates?”

Something he did back in the early days of Jetstack — when they found it difficult to pay the market rates. They would make up the difference by offering options and including bonuses based on company performance.

Options aren’t the only thing startups can offer when high salary raises may be hard at first. Deion from Mercer provided a few perk examples that I have certainly not heard of before, such as:

A few days botox leave in Asia, or
4 hangover days per year in Europe.

I mean both sound kind of great but seemingly less likely to make much difference in the startup world.

Most ambitious startups, when unable to offer a market rate salary to win and retain great team members, want and often do use other alternatives such as more autonomy, ability to move very quickly, minimal bureaucracy, having an impact, huge growth potential, great culture, flexibility etc.

So what’s next?

When I’ve summarised all my findings and shared them with the leadership team at GoSquared, the big question was — what shall we do at GoSquared?

…and that’s exactly what I recommended we do.

From Jan 2021 we agreed that salary reviews should be synced and run twice a year, in June and December (unless on probation period).
In terms of frameworks — I decided to go for a combination of Charlie’s and Blendle’s. One helped me visualise everyone’s salaries against their benchmarks. The other one we would use for determining the maximum salary increase % (but with a slight tweak on the variables).
As for the bonus scheme — we decided to revisit this once the team was satisfied with the proposed process for salary reviews first.

I didn’t want to re-invent the wheel for the purpose of keeping things simple and lean. And before launching this for everyone on the team in June, I also wanted to do a couple of run throughs first, to get some feedback and make any adjustments.

So we did, with 2 co-founders and 1 hiring manager, and the feedback so far has been promising and also very useful:

“VERY pleased with the process — so grateful to you for sorting this. Finally feels like we have a solid process to follow. I found the salary benchmarks particularly useful — having a sense of market rates is reassuring.”
“I think the % increase framework is really smart. With [Name] salary being £[ ]k however, it does mean that the actual % increase ends up being small. But the process itself I think is really good.”
“[Name] was really impressed with the thoroughness of the review process.”
“Awesome that you have 6 month reviews, but also the fact that it’s so well structured on the different themes, and your efforts get reflected and quantified.”

What about…?

Thanks to a few run throughs, I could make a few adjustments to the process, like creating a “Salary Review Template” in Notion for hiring managers to fill, or adding another variable for a “discretionary top up” to the framework.

However, we also came across a bit of a hurdle. Completing salary reviews for employees wasn’t hard but what about the founders? Who and how will they get their salaries reviewed, and raises decided on?

This is when we realised that we needed to reassess their performance review process and have something more solid in place for the leadership team. Or possibly implement the Progression Framework for them too?

P.S. This could well be my next blog post, considering one of my 2021 goals is to publish 1 Ops blog every month, so you better hold my word for it!

Until then :-)