'Startups': A View
An early priority but one
that shouldn't change - is
trying to create a brand
and culture around the
company missionMost companies use TCC as the
anchor to benchmark their pay
positioning in the market instead
of TFP
Since revenue is largely driving the valuations, that
means they generally have a healthy product ors
pipeline, good financial performance and prospects,
and a fairly well-developed infrastructure.
One emerging practice that is different in the unicorn
than in a typical, smaller startup is what's happening
with employee stock. Typically, with pre-IPO stock, it's
hard to quantify a value and employees are anxious for
a "liquidity event." That means an IPO or sale of t he
company. With unicorn, companies are postponing
going public or being sold - sometimes indefinitely. To
provide an opportunity for employees to cash out, some
unicorns are giving employees restricted stock (instead
of the traditional stock options in a privately held
company) and allowing them to cash out when vested
at subsequent rounds of financing. This essentially
creates an internal, private market.
Q. How do the HR strategies mature and evolve as the
organization scales up?
A. Radford: As companies scale up, we see the
compensation programs mature by adding in
additional components such as a salary structure or
an annual incentive plan. From an overall strategy
perspective, companies emphasize attracting key/top
talent in the early stage and as the company scales,
the emphasis will naturally shift to retention and
motivating employees along the business strategy.
Q. In the 'pre-revenue' stage of a startup, what role
does 'pay at risk', both in the form of LTI and STI, play?
A. Radford: In the 'pre-revenue' stage of a startup, the
emphasis is generally on salary and LTI. LTI is in the form
of equity - i.e., an ownership interest in the company.
Short-term cash incentives are minimal since at this
stage the company may need to conserve cash until they
bring their product or service to the market. However,
having said that - in highly competitive markets like
the Silicon Valley, often if you are competing for talent
with public companies, then the amount an employee
at a startup or private company can earn in STI might
be similar to the STI opportunity in a public company.
The plan design, however, might be very different -
far less formulaic, broad parameters for determining
success, and more discretion in determining bonus pool
funding and individual payouts. Quarterly goal setting
may be a more agile approach. A "fully competitive cash
program - base salary and STI" is reflective of how fluid
this environment is in the US, where engineering talent
can go anywhere, and often does bounce back and forth
between established, public companies and startups.
Q. It is widely acknowledged, that the kind of talent
hired by startups is different in terms of attitudes and
competencies as compared to established organizations.
Does the 'talent profile' change as the organization
scales up?
A. Radford: It's true that some people are just "startup
people by nature."They prefer being part of a more
undirected environment and don't like being part of
a public company and the rules and scrutiny that go
with that, or increased bureaucracy. As a company
scales up, some senior employees who were happy
at heart with being individual contributors and are
now pressed into being managers may not thrive
in management roles. So you need to look at who
can and wants to scale with the organization.
Where an employee is in their lifecycle plays a big role.
Employees with young families may find that the demands
and relative uncertainty of a startup is more than they
want to handle during this phase of their life. It may also
simply depend on the company environment - its mission,
culture, and the career opportunities available that
matter - whether in a startup or established company.
Q. Is it common to see high levels of attrition as
the organization scales up, especially at the senior
levels? Have organizations been able to identify
measures to retain and engage this integral group
of employees throughout their evolution?
A. Radford: Actually, it is not common to see high
levels of attrition at the senior levels as the company
scales up, as the senior levels are generally more
locked into the company's success, either because
they care passionately about the company's mission
or because they have a considerable financial stake.
Also, companies have a lot of time to plan an IPO. So,
for example, they would typically hire a CFO who is
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