In any market, your compensation plan should flex, not break. The strongest plans keep a simple ROI lens on cash and equity, use trusted market data, and treat equity like a long-term promise, not a quick cash fix. If you have a refresh or merit cycle coming up, start with these three moves to keep your plan resilient all year.
Understand Where You’re Getting the Biggest ROI
Make sure you have a strong handle on the elements of your compensation plan so you know where you can adjust, if necessary.
Start by evaluating base salary, incentives, and equity vehicles, and revisit your goals for each. Where are you seeing the strongest return on investment? For example:
- If your merit budget was designed for retention, are you seeing those results?
- For annual incentives, are your plans self-funding, and are they effectively rewarding performance?
- Are you using equity grants wisely — motivating high performers in critical roles while considering both vested and unvested equity to avoid non-productive burn rate and little return equity overhang?
Once you’ve identified the areas where you’re seeing the most value, decide what elements you can trim or adjust to ensure your compensation package remains sustainable.
Finally, follow up by measuring whether your changes delivered the desired outcomes.
Use Reliable Compensation Benchmark Data
If you aim to design your compensation program around competitive market data and a target market position, be aware that not all compensation data is reliable.
Only use high-quality data that accurately represents the market you’re targeting. Make sure it includes companies of similar size, industry, funding stage, locations, and other factors relevant to your business.
How can you tell high-quality data from data to avoid?
Bad data is typically free. This kind of data is often crowdsourced, unverified, and compares roles by title only. It fails to consider variations in duties, required experience, and job levels across companies. Worse, it’s usually managed by engineers and data scientists without compensation experience.
In contrast, high-quality data is evaluated and refined by compensation professionals who understand the complexities. Yes, this level of diligence comes at a cost. But when you pay for data, you’re paying for experts who prioritize data integrity, analyze trends year over year and quarter over quarter, and recognize that compensation benchmarking is both an art and a science.
Don’t Treat Equity Like Cash
When cash is tight and companies are conscious of their runway, they tend to lean heavily on equity to attract and retain talent. But even in uncertain times, it’s important to grant equity thoughtfully. If you’re a private company, don’t treat equity like cash.
Unlike annual incentives that are based on company performance, individual performance, or both in the previous year, equity is about someone’s expected future contribution to the company and should be used to drive loyalty and retention.
When employees don’t understand their equity grants, companies just grant them more, putting their equity pools at risk. Instead, invest in educating employees about equity and the potential value of their awards.
Bring it back to ROI — mindfully grant and communicate about your equity program and you’ll get more value from it.
Building a Compensation Community
At Sequoia, we believe community is key to building a sustainable compensation database. If you’re curious about our community and how we help investor-backed companies design comp plans that drive business goals, connect with our team.
Last Updated:
