Planning of the salaries and their dispersal in start-ups should be governed by certain practicality. Firstly, both the entrepreneur and the employee should understand that the key motive behind start-ups is to attain fast growth and not quick turnovers. A thorough adjustment of mindset from both the CEO and the employee’s end is required as it is not logically possible to earn as high as in the open market or in MNCs. Salary growth is indispensable with company’s growth but that is long drawn process and not an overnight one.
What should be the way to fix salary brackets and dispersal at startps?
Salary of Employees: First of all as entrepreneurs, you should know that there is no fixed formula as how to design salary brackets for employees, however there are certain guidelines that can be followed in this regard.
- The first and the most important factor that governs the salary brackets of employees is the funding that your start up has received. Please be pragmatic here. Don’t feed on false hopes of offering astronomic salaries to your employees.
- Though there is no fixed rule governing pay structures in start-ups, employees should at least be paid 75% percent of what they had been paid in their previous job or at least of what he could have been earning in a multinational company.
- You can as well pay 60 percent of the employee’s previous salary or what he is worth in the corporate world, but you have to make up for the lack by tying a range of perks like flexi timing, more number of vacations, in-house day cares for new mothers and possibly a good yearly commission
- You can also abide by the norm of introducing variable pay in your company. For instance, if a junior at your company is worth a lakh per year then 90 percent of that should be fixed and the rest 10 per cent should be linked to his own performance and the overall performance of the start-up
- The norm of variable pay can be implemented at all levels, ideally that should be 10-15% at the junior level, around 90 percent at the upper level and around 70 per cent at the middle level
- Employee salaries should increase with registered growth rate of the company
As owners of start-ups the greatest virtue you can exhibit is patience. You have to prepare yourself to live on less and tune your lifestyle to a great extent as profit generation in start-ups takes time. Most of the success stories that you will come across in this regard will tell you that the first few years in start-ups turned out horrible for entrepreneurs in terms of pay. You can defer your pay until the company starts churning out profits. Hiking your own pay and reinvesting in your business cannot be done simultaneously. You however can reward yourself with performance bonuses and stock options. In this regard it would be helpful to mention that stock options should be available only to the higher levels at the start ups. Remember for you growth and not salary should be your reward.
Please remember that having a rough estimation of the time required for breaking even is important. Though employee’s salaries can experience a slight growth after a break-even it is not wise to increase you own salary as soon as a break-even is achieved because that would increase company overhead.
Startup entrepreneurs will need a buffer to pay off salaries
Having an additional investment or for that matter capital set aside to act as salary pay offs at troubled times helps. Arranging for the same might seem a mountainous task. But a little diligence from your part can be of help in this regard. The internet will provide you with ample information of how start up CEOs arranged for this money initially. It might be from your savings from your earlier jobs or can come as a help but not a loan from your spouse or a close friend. Please remember that the individuals involved with the growth of your company are not expecting to earn big bucks initially but whatever the pay structure be, it should be dispersed to employees on time— however having this money as a buffer can also act as a hindrance. As starters you might as well be tempted to over spend on staff salary or other overheads. Please refrain from doing this. Concentrate only on assessment and reassessment of the company’s growth as it acts as the guiding factor for determining salary brackets. The growth rate mostly fluctuates during the first 6-7 months a lot. You can then use this money for paying off salaries to employees. If there is a situation where you think you will not be needing this money for staff payment you can invest it duly for some product tweaking or marketing or for that matter product testing, but not unnecessarily on overpaying a staff or something like that.