Dec 17, 2020

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?

The world moves fast. Monitoring your primary expense line regularly will give you a better handle on your business.
Provides a natural answer to ad hoc salary requests and concerns, since the next review is always coming soon.
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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By 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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