How VC-backed companies compensate employees speaks volumes about an organization’s culture and values. More than just being a tool for retaining and attracting top talent, it impacts businesses at its most foundational levels. This is why it’s essential for VC-backed companies to develop a thoughtful, strategic compensation philosophy. 

The Importance of a Comp Philosophy

A strategic compensation philosophy sets the tone for how an organization values and rewards its employees. It’s a concrete representation of an organization’s culture, reinforcing how to reward employees for delivering upon their company’s mission, values, and strategic objectives. 

For most VC-backed companies, it’s important to align the organization’s comp philosophy with its size, scale, and stage. For example, an organization with limited revenue might find it desirable to compensate employees at the top end of their respective market and promote a pay-for-performance culture. However, there could be constraints due to an organization’s specific size and financial resources. 

The Role of Job Architecture to Compensate Employees

A well-defined job architecture can significantly aid in creating clarity around roles and compensation. It enables companies to better define roles, identify career paths, create more transparent compensation strategies, and makes HR reporting and analytics more insightful. A sound job architecture also makes it easier for employees to understand their career growth potential and how they are valued within the organization. 

Understanding your employees’ expectations when it comes to compensation is another critical factor. No matter what your comp philosophy is, it’s important to ensure employees feel valued for their expertise, tenure, performance, and industry knowledge. 

How to Communicate a Comp Philosophy 

Communication is key when it comes to how you compensate employees. While many of the behind-the-scenes details of a company’s compensation strategy may be known only to HR and those in senior leadership positions, it’s important to adopt a transparent approach that aligns with your comp philosophy. Employees need to understand the rationale behind the compensation they receive, otherwise it becomes a “black box” often leading to perceptions of being paid unfairly, under market, and inequitable to peers. 

Sharing your company’s comp philosophy is a great first step to shining light on the “black box” and improving your employee’s education regarding how and why they’re paid. It should be continuously shared throughout the employee life cycle, from job interviews to exiting the firm. 

Pay Transparency: A Growing Trend 

The trend towards pay transparency is strong and shows no sign of abating, with more states creating pay transparency legislation. In defining your strategic compensation philosophy, it’s essential to consider where you stand on the pay transparency spectrum. It’s a delicate balance—while complete transparency might not always be feasible or desirable, a complete lack of transparency is becoming antiquated. 

The Continuous Evolution of Your Strategic Compensation Philosophy 

A comp philosophy should evolve as an organization grows and changes. Regular assessment of its desirability, affordability, and effectiveness is vital to ensuring it remains aligned with a company’s goals and objectives. Consensus building and alignment are key aspects of this process, with stakeholder interviews playing a crucial role. 

At its core, a comp philosophy is a commitment to employees. It underscores the value that’s placed on their contributions and an organization’s dedication to rewarding them fairly and transparently. By aligning compensation with company goals, gathering accurate market data, and regularly reviewing the philosophy in place, companies can ensure they create a winning formula for success. 

The System to Guide Your Comp Philosophy 

Creating an effective and strategic compensation philosophy requires careful thought, planning, and continuous evaluation. It’s an investment that will pay dividends by attracting and retaining top talent, promoting transparency, and helping foster a culture that values its employees. To help operationalize and communicate a comp philosophy, Sequoia has created Comp OS, a platform that brings together compensation data, systems, and work streams into a single source of truth.  

If you are a Sequoia client, you have access to Comp OS for free until May 31, 2024. Contact us today to learn more about Comp OS and what Sequoia can offer your organization 

Calvin Croskey — As Director of Compensation Advisory, Calvin utlizes his deep total rewards expertise to empower Sequoia clients, enabling them to unlock their full potential, sustainability scale, and create long-term success stories.