Stop Guessing on Employee Compensation. Your Team Knows You Are

Stop Guessing on Employee Compensation 

You can’t build a world-class team with back-of-the-napkin math.

Yet too many startup leaders are still winging it when it comes to compensation and equity. They tell themselves it’s too early to formalize anything. They Google a few ranges and pick a number that “feels fair". They match whatever the last hire negotiated, or worse, guess what they think the person would accept.

All the while, they’re hoping no one finds out that there’s no real system behind it. But here’s the thing:

Your team already knows.

👉🏾 They know when comp decisions are inconsistent.

👉🏾 They know when a peer is making more for doing less.

👉🏾 They know when equity awards are arbitrary.

👉🏾 They know when you’re bullshitting.

And once that seed is planted - that there’s no method to the madness - trust erodes. Not just in comp, but in leadership.

Guessing on comp isn’t just sloppy, it’s expensive, risky, and unsustainable if you plan to scale.

The Myth of "We'll Fix It Later"

Startups love to defer structure. That’s not always wrong. When you’re two people in a garage, over-engineering is a waste of time. But compensation isn’t one of those things. Why? Because every guess you make today becomes a precedent.

👉🏾 You make one offer with above-market equity? That’s the new expectation.

👉🏾 You lowball a great hire to save runway? You’ve just planted resentment.

👉🏾 You overpay for someone out of fear they’ll walk? Now everyone else has questions.

Every offer you make sends a signal.

It tells your team what’s valued, what’s negotiable, and whether your org is operating with discipline or chaos. And if your comp decisions look like darts thrown in the dark? No one trusts you to scale.

The Cost of Compensation Chaos

Let’s break down what sloppy compensation decisions actually cost you:

1. Eroded Trust

When comp isn't grounded in logic or fairness, your people stop trusting leadership and start looking elsewhere. Quiet quitting starts with quiet resentment.

2. Retention Risk

People don’t leave just because they’re underpaid. They leave because they don’t trust that you’ll ever fix it. And they’ll leave quietly, taking their institutional knowledge with them.

3. Recruiting Whiplash

If offers vary wildly without rationale, candidates talk. Especially in tight talent circles like product or engineering. Your reputation will follow you.

4. Equity Misfires

If you’re handing out equity like candy without understanding dilution, vesting cliffs, or role-based tiers, you’re not just being generous - you’re being reckless. Over-granting kills future flexibility.

5. Legal and Compliance Landmines

Misclassify a contractor? Miss pay transparency laws in CO or CA? Forget to document equity awards properly? That’s not just bad HR - that’s a lawsuit waiting to happen.

Your Team Isn’t Clueless

Founders often underestimate how much their teams understand compensation.

Spoiler alert: your people are Googling levels, checking Glassdoor, commenting on Blind and trading notes in private Slack channels. They talk to recruiters. They know their market value - sometimes better than you do.

They also know when offers don’t line up:

• “Wait, I have five years here and less equity than the new hire?”

• “Why are they VP with no direct reports?”

• “He got a bonus and I didn’t — and I hit more of my targets.”

They don’t need a comp philosophy doc to feel the inequity. They feel it in every 1:1, every raise cycle, every off-cycle negotiation.

And once trust is broken in compensation, it's damn hard to get back.

Why Founders Keep Avoiding It

There are usually three reasons founders avoid building a real compensation system:

1. “We’re too small for that.”

Nope. You don’t need 200 employees to act like a grown-up company. If you have 5+ people, you need a consistent approach, even if it's simple.

2. “It’ll lock us in.”

Wrong. Structure doesn’t mean inflexible. It just means intentional. A lightweight framework gives you guardrails, not handcuffs.

3. “We can’t afford to pay competitively.”

Then be honest about it. Comp isn’t just cash. You can be below-market on salary if you’re transparent, intentional, and clear on tradeoffs (e.g., mission, equity, flexibility, upside).

But pretending you’re competitive while hoping people won’t notice? That’s the fastest way to lose them.

What to Do Instead

Here’s a 'Playbook' for getting comp right so you can stop guessing and start leading when it comes to comp.

1. Define Your Compensation Philosophy

This doesn’t need to be a 12-page doc. Start with three questions:

• What percentile of the market do we aim to pay at?

• How do we balance cash vs equity?

• What matters more: internal equity or market competitiveness?

Your philosophy is your North Star. It lets you explain why someone is paid what they are and how you make those decisions consistently.

2. Set Role-Based Salary Bands

Even if you're not ready for levels and ladders, you can define salary and equity ranges for key roles:

• Mid-Level Engineer: $120–140K + 0.3–0.5%

• Senior Product Manager: $150–170K + 0.5–0.7%

Keep them simple, but grounded in real data.

Once ranges are set, stick to them. Exceptions should be rare and justifiable.

3. Normalize Internal Titles and Levels

You don’t need to go full Big Tech, but you do need consistency.

Having two “Directors” making $40K apart with wildly different scopes is a recipe for drama. Normalize what titles mean and what level of impact or experience is expected at each. This also makes performance reviews and promotion discussions way easier and way less political.

4. Stop Hiding Equity Terms

Startup equity is often a black box. If you’re offering 0.5%, what does that mean?

Explain:

• Fully diluted %

• Vesting schedule

• Cliff details

• Exit expectations and dilution impact

If you’re not ready to explain it clearly, you shouldn’t be offering it.

5. Build a Calibration Habit

Every 6–12 months, review:

• Are people still within range?

• Have market rates changed?

• Are you keeping internal equity in check?

• Are you rewarding performance, or tenure?

This is where most orgs fall apart. The problem isn’t usually the original offer, it’s what happens (or doesn’t) in years 2 and 3.

6. Document Everything. Transparently.

Build a simple compensation summary or “total rewards statement” for each employee. This shows:

• Base salary

• Equity (grant value and %)

• Benefits overview

• Bonus or incentive targets

You don’t need to share everyone’s comp with the team, but you do need to explain each person’s package clearly to them.

Clarity ≠ full transparency.

Clarity = trust.

Final Word: This Is Your Job

Attention: #Founder, #CEO, or #COO - you don’t get to delegate this one. Comp is not “just an HR thing.”

It’s a reflection of your values, your leadership, and your company’s maturity. Winging it sends a clear message:

We don’t care enough to do this well.

But getting it right? That builds the kind of trust, alignment, and loyalty money can’t buy.

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If this hit home…

Listen to the 🎙️ HR Decoded Podcast where we go deeper on compensation, founder leadership, and the messy operational realities behind every scaling startup.

Need help building your comp structure, leveling system, or total rewards strategy?

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