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Bursts of Color - Quarterly Salary Reviews

Bursts of Color - Quarterly Salary Reviews
By Geoff Donaker • Issue #37 • View online
Traditionally, companies conduct annual salary reviews at year-end. This is often a big “to do” that can take weeks or months… and culminates in a tension-filled day when each employee is brought into a room and presented with their new salary figures.
I believe there’s a more efficient and palatable way to handle compensation reviews, especially for younger companies. Counter-intuitively, this starts with doing salary reviews more often.

Why Review Salaries Quarterly Instead of Annually?
  1. The world moves fast. Monitoring your primary expense line regularly will give you a better handle on your business.
  2. Provides a natural answer to ad hoc salary requests and concerns, since the next review is always coming soon.
  3. Removes the tension and gossip associated with a big annual raise day, since only ~25% of folks get adjusted each cycle.
How Does This Work? A Default Approach For Start-Ups
  • Quarterly working session to review salaries, e.g, in December, March, June and September.
  • For start-ups of less than 200 people, this working session should require only 2-3 key execs and less than 2 hours.
  • The primary focus is “on cycle” employees who have not had a raise in 12+ months, staggered from their start date (if you start in May 2020, your salary will be reviewed in June 2021).
  • The bulk of these employees, who are doing well but whose job did not fundamentally change, typically get an annual market adjustment of 2-3%, though this varies based on market conditions and company performance.
  • This is also a time to handle any special cases, like promotions or other significant role changes, that happened in the past 3 months. These may involve much larger raises.
Some Related Suggestions
  • Set the budget beforehand, then check your work to ensure you can afford it before communicating the raises.
  • Standardize compensation within function and level as much as possible. This is usually possible once you have 5-10 people doing something similar in one group.
  • Decouple these routine salary reviews from coaching or performance feedback. While I understand the desire to combine these things, I have always found them to be oil and water. Once you start talking about money, folks tune out any well-intentioned talk of career development.
  • When companies are old enough to have employees near the 3 year mark, you can also add equity refresh grants to this quarterly comp review. Companies handle refresh grants in many different ways; more on that another time.
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Geoff Donaker

Bursts of Color is a newsletter for start-up leaders who work with Burst Capital. It's meant to include products, people and ideas that I think are interesting and maybe relevant for you.

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