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Jump to the tools: Compensation guidebook and spreadsheets

This is not a complete guide to compensation for venture-backed companies. That would be beyond my zone of competence. Instead, this is a guide to help a venture-backed company efficiently and effectively discuss the key elements of compensation (base salaries, variable compensation, and equity grants) with its Compensation Committee.

My goal is to help management teams present their recommendations with the right level of detail, laid out in a way that (based on my experience) makes sense to a venture investor. I wrote this for myself. I have had the same conversations repeatedly for many years with all the companies I work for, and I wanted to get all my thoughts down in writing to save time. The idea is to make the Compensation Committee approval process as smooth as possible—or, as I often put it to my management teams, to “make it easy for us to give you what you want.”

Some of the content may feel obvious or overly detailed, but I make no apologies for this. Compensation discussions are an area where even the best startups can struggle to reach alignment with their investors. Some of the most difficult discussions I have had in board meetings have been around comp.

What I have learned over time is that the right process, boring as it is, is everyone’s friend. Clear information that is well laid out helps to replace emotion and opinion with facts. The right market and company data create a helpful link between what the board is giving (cash, bonuses, and equity) and what the board is getting (alignment and performance). Almost always, the result of a thoughtful process is much quicker convergence on the right decision, with a lot less drama along the way. Again, remember the mantra: “make it easy for us…”

Some thoughts on what compensation is and is not.

First, compensation is not a zero-sum game. It is a chance to align the management team and the board around the long-term objectives of the company and back that alignment financially. Done correctly, everyone wins together.

Second, caring about compensation is nothing to be ashamed of. I really dislike the snide description you often hear about people (often about sales executives) being “coin-operated.” The truth is that we are all, at least in part, coin-operated. Maybe some people are more comfortable speaking in abstractions, but everyone wants to know what they have to do to succeed and where they will stand economically if they do. Additionally, for hypercompetitive executives, it is often not just about the dollars—it’s also about being acknowledged for winning.

Finally, compensation is an incentive, not a reward. It is not a “thank you” bestowed after the fact by a kindly board. It is an upfront incentive system that aligns employees with the goals of the company.

Big picture: compensation matters.

We sincerely hope you will find this material helpful. If you have any questions, don’t hesitate to shoot us an email at comp@scalevp.com.

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