Your Startup Is A Taking Off? 5 Ways To Incentivize New Employees

3 min read

You have built the boat (or the rocket, or the plane, pick your favorite vehicle) and now it’s time to grow. How do you bring abroad new sailors to set course amidst uncharted waters? Obviously mission goes a very long way, here are five practical ways to ensure you are attracting and retaining talent.

1) A Multivariable Problem

First be mindful salary and equity are not the only incentives, in fact here is a reasonably comprehensive albeit non-exhaustive list: 

  • annual / performance bonus – especially in the case of sales
  • ability to do secondary – especially for senior employees, how much stock they could sell and when even before an exit
  • relocation expenses – typically in larger companies, sometimes given as a mixture of cash and temporary housing
  • severance – rare in startups but can be a point of discussion for very senior roles
  • vacation policy – even people in startups deserve some days off
  • health benefits – matters especially to employees with families
  • various other benefits – food has become a big one for startups in Silicon Valley
  • flexibility around hours and location – covid accelerated the trend of distributed teams

In negotiations it may be the case you have to remind an employee about these different variables, while trying to understand how much they care about them. At Tau we advise our startups to follow 80-20 rules i.e., have standard packages pegged to the market, but give enough room for customization.

2) Give Choices

Our own experience – as entrepreneurs hiring, or being hired by entrepreneurs – was that a manageable number of options increases happiness. Too few doesn’t help, too many creates the paradox of choice. So at Tau we advise giving three:

  • high on salary, low on equity
  • high on equity, low on salary
  • medium on salary, medium on equity

What “high”, “low” and “medium” mean obviously varies based on each company, the point is giving employees agency. The very fact they have a choice increases their likelihood of taking an offer and being able to pick what is best for them ensures higher retention.

3) Provide Benchmarks

Every week or so we field a call from someone we know asking for help on understanding whether the offer they got is reasonable. We point them to a number of resources. Sites like Glassdoor publish ranges around salaries – won’t apply to every case but it helps. Career development Center of many universities provide anonymized aggregated data on their alumni and/or various industries. If the offer came through an external recruiter he/she should also have some data. As humans we may be emotionally convinced about something and looking for logical ways of justifying a decision. At Tau we are advocates of providing independent benchmarks upfront and also introducing prospects to investors so they can share their benchmarks / thinking.

4) Further Upside

You have just raised another big round, your valuation has reached new levels, morale is all time high. Wonderful stuff. But don’t let celebration become euphoria because success breeds other problems, specifically on how to attract and retain new talent. Joining a startup is often about taking a substantial cut in salary and betting on equity, which naturally becomes harder if the stock is already very high. If you are facing this challenge then your single biggest challenge will be to show potential recruits why the company has a lot more ahead. At Tau we advise our entrepreneurs to present a framework, even a very simple one focused just on the fundraising stage and revenues / profitability can do the trick. In other words, if you are series A then what do future rounds look like and when you get to a 10x. If you are series C then how do you get to an exit and does that look like a 5x. If you have a pipeline of customers then how do you execute on it. Transparency is key to building trust.

5) A More Perfect Union

Employees and employers have an economic contract but there is also often an unspoken social contract. And for us the latter means if conditions change significantly, the company should update its deal with the employee. If the company is doing poorly then it’s probably about safeguarding jobs rather than hiring talent. It’s if the company is doing very well that the scenario of how to attract talent will come up. Some startups will give stock outright rather than options, so employees don’t have to pony up cash to exercise (buy) them. The equivalent in public companies is people selling some stock to fund the rest of purchase. Another tool wielded by startups is to provide refresher grants i.e., issue more stock to employees based on their and / or company performance. There are also double triggers in the case of a change of control i.e., an employee’s vesting accelerates.

Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.

Amit Garg I have been in Silicon Valley for 20 years -- at Samsung NEXT Ventures, running my own startup (as of May 2019 a series D that has raised $120M and valued at $450M), at Norwest Ventures, and doing product and analytics at Google. My academic training is BS in computer science and MS in biomedical informatics, both from Stanford, and MBA from Harvard. I speak natively 3 languages, live carbon-neutral, am a 70.3 Ironman finisher, and have built a hospital in rural India serving 100,000 people.

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