Find out how you can create a compensation strategy that makes your startup attractive to the best talent without straining your budget.

Here's what you need to know:
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To create a workable salary and benefits strategy for your startup while building an excellent staff, pay for performance and offer performance-based incentives
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Consider your company's physical location and account for your company's development phase
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Invest in your employees' growth and development and promote flexible working arrangements for employees
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Reward with job titles to attract top talent on a budget
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Merge compensation with a strong company culture
You have decided to start your own business. In your arsenal is a rock-solid strategy founded on extensive research, previous industry experience, and training. You also have decent capital to get you off the ground. Now it’s time to find the team to help you turn your vision into reality.
Getting the ideal team together is critical for any startup’s success. However, 2 factors make it a challenging endeavor:
- Overspending on staff compensation can leave your young business cash-strapped down the road.
- Lowballing potential employees can have them jump ship as soon as more lucrative offers come along.
Attracting and retaining the right employees without jeopardizing your startup’s future requires you to maintain a delicate balance between these 2 extremes. Without a solid compensation strategy, your business may never get off the ground.
To give you the best shot at success, we have put together 7 tips for creating a workable salary and benefits strategy for your startup. Let’s look at them below.
1. Pay for performance and offer performance-based incentives
Crucial roles like engineers, user experience designers, and product managers are in high demand, and the best employees will not expect anything less than 6 figures. Nevertheless, you can still fill these positions with top talent by getting creative with your compensation structure.
Lucrative performance-based incentives are an effective way to get someone with hard-to-match salary demands on board. This way, you pay them highly for the value they add, rather than their presumed experience or skill level.
For example, you could offer a top software engineer a $50,000 bonus if they can help you launch your product within 6 months. If they succeed, it’s a win-win for both them and the company. But if they fail, you will have avoided wasting valuable resources on someone who was not a good fit.
Consider the following when offering performance-based compensation:
- How easy is it to track and measure progress towards the goal?
- What is the likelihood that the employee will be able to achieve the goal?
- What is the financial impact if the employee does achieve the goal?
- And, what is the downside risk to the company if things do not go as planned?
Exceptional hires are usually motivated by performance-based pay as it means they could potentially earn a lot more than their base salary. Therefore, rewarding performance is a great way to ensure you invest in people who are genuinely passionate about your company and mission.
2. Consider your company’s physical location
When it comes to startup salaries, you will not find a 1-size-fits-all solution. Instead, the amount you pay your employees will depend on various factors, among them the location of your business.
For example, a pre-seed stage startup in San Francisco will have to offer higher salaries than a post-series A startup in Omaha to stay competitive. This is because the cost of living and general standard of living is much higher in the Bay Area.
So, when drafting your strategy, go through averages from reliable sources like the Bureau of Labor Statistics and Glassdoor to come up with a salary range that accurately corresponds to your company’s location. Once you have a baseline, you can adjust the number up or down based on the value of your prospective hire.
If you are looking to save on costs, it might be worth relocating your business to a cheaper area. Just make sure your new location’s talent pool is deep enough to sustain your business.
3. Account for your company’s development phase
Your startup’s development stage will also influence how much you can afford to pay employees. For example, a seed-stage startup typically has less money to work with than a later-stage startup. This is because early-stage businesses are still trying to validate their product and business model. They also tend to have fewer customers and revenue streams.
While attracting top talent in the seed stage is possible, you need to be creative with your compensation.
For example, you could give employees a larger equity stake in the company instead of offering high salaries. That way, you can save some much-needed capital while motivating your staff to be more invested in your startup’s success.
If you are a later-stage startup, you may be able to afford more competitive salaries. However, this does not mean you can blindly throw money at every prospective hire. Instead, consider every new employee’s value to the company to gauge whether they are worth the investment.
4. Invest in your employees’ growth and development
Successful professionals want jobs that enable them to develop skills and grow in their careers. If you can show them that your startup is committed to helping them reach their full potential, they will likely stay with your company for the long haul.
When creating your compensation strategy, consider including a professional development map as part of the benefits package. Below are several ways you can show employees your commitment to their development:
- Invest in staff education by paying for relevant professional certifications, membership fees, and subscriptions to learning platforms.
- Create an internal mentorship program or job shadowing program where more experienced employees help develop the skills of newer hires.
- Encourage employees to work on high-profile projects that will help them develop their skills.
Investing in your employees’ development will help you retain top talent and ensure that your business has the skilled workforce it needs to grow and succeed.
5. Promote flexible working arrangements for employees
In today’s job market, employees value flexibility more than ever before. They want to be able to work from home, set their hours, and have a better work-life balance.
Flexible working arrangements are taking over the job market and are an essential consideration when creating a compensation strategy.
Therefore, offering flexibility can make your startup more attractive to prospective hires. This is especially true if you want top talent from larger corporations that might not be as flexible.
Some ways you can promote flexibility in the workplace include:
- Offering the freedom to work from home at flexible hours
- Giving unlimited vacation days
- Providing paid parental leave
- Issuing sabbaticals to veteran employees
Flexible working arrangements are taking over the job market and are an essential consideration when creating a compensation strategy. By offering more flexibility, you can attract top talent without breaking the bank.
6. Reward with job titles to attract top talent on a budget
Job titles can be just as important as salaries for some professionals. This is because a good title can help an employee further their career and improve their earning potential in the future.
So, if you are recruiting a high-level executive or other experienced professional, consider offering them a title that is a clear step up from their last gig.
The following pointers can help make the titles you offer enticing enough to attract the best talent.
- Use descriptive titles that accurately reflect an employee’s responsibilities.
- Consider offering multiple titles for the same position to give employees more options.
- Avoid using titles that are too general or could be given to anyone in the company.
- Be cautious of offering titles that are too specific as they might pigeonhole an employee’s career.
Offering job titles that promote career growth is a great way to attract top talent on a budget. A title alone may not dent your wallet, but it can make a massive difference in your employee’s future.
7. Merge compensation with a strong company culture
Salary and benefits are just half of the equation for attracting and retaining employees. The other is your company’s culture.
Company culture entails the way your business operates on a day-to-day basis. It includes your company’s values, beliefs, and how employees interact with each other.
Strong company culture can be a significant selling point for prospective employees. Glassdoor reports that company culture is just as, if not more, important than salary for many job seekers.
Therefore, positioning yourself as the complete package for potential hires means aligning your compensation strategy with your company culture.
For example, suppose your company culture is focused on work-life balance. In that case, your compensation strategy must include paid time off, flexible work arrangements, and other benefits that promote a healthy balance.
Similarly, if your company culture insists on supporting career growth, you could focus on offering mentorships and job titles that promote future advancement.
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An effective salary strategy is key to your startup’s success
When starting a business, deciding how much to pay your employees can be challenging. To manage employee benefits, you want to be competitive but do not want to overspend and strain cash flow.
To strike the right balance, you need a salary and benefits strategy that is:
- Creative enough to help you put the right team together without offering exorbitant salaries
- Affordable and sustainable for your business in the long run
So, use the tips above to put together a competitive package that will attract and retain the talent your young business needs. A thoughtful strategy will make your team feel valued and will help your startup succeed in the long run.