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Salary, Value, and Poaching

Nate Lentz
October 24, 2016

We have seen a number of high quality people getting poached or almost poached from different portfolio companies over the last couple months. The labor market for skilled technical and analytic people is tightening and the war for talent seems to be only getting more intense.

One area where we have been seeing forward-thinking company executives take action is in the attempt to market-price employees, especially less experienced, fast-rising team members. A mistake that is often made is to hire a very inexperienced person (often just out of college) at a low, but fair starting salary and then to increase that salary at the same rate as the overall average employee base raises. As an example, many companies will hire a new marketing analytics team member at $45k and give them two years of 5% raises, but that means they are barely making $50k. If they go to the market after two years of working at your hot start-up, with the great experience you gave them, what could they make? $60k? $75k? The key is to ask yourself what you would pay to hire someone of a similar profile and make sure you are paying near enough to that level to make the employees’ decision to shift jobs to not really be about money. Then if your culture is good, the upside is high, and the options have potential, these people are most likely to stick with you.

This is mostly an issue with younger hires, as the value of a person going from no experience to three years of experience rises at a very steep slope. From three years to six years, the slope flattens. Beyond six years, it is really a person-by-person and market-by-market decision, as at that point you pay for talent because most potential has been realized. Average raises across your workforce just don’t work for the rise in value of a person in the early years of a successful growth curve.

My advice for CEOs and functional leaders – make a print out of the cash compensation of everyone on your team on a quarterly or semi-annual basis and look at it over the last 8-12 quarters. By the way – always look at total cash compensation in making this decision, as bonuses and commissions certainly do count. Calculate the growth in compensation over time. Ask yourself how valuable and how ambitious each person is. Ask if you would have been happy with this level of salary acceleration at the same stage of your career. Then make the appropriate adjustments. Cash is king, salaries need to be held down as much as possible, and frugality of CEOs is a great quality – yet software companies have one real asset and that is people. Grow, nurture, and protect your team. Match salary to experience and value, not time, and keep the poachers at bay.