entrepreneurshipresource center

The Resource Center has all the info you'll need From content to user feedback, the resource center has the information you need for every level of the entrepreneurial process.

The Five New Rules of Compensation: How To Get the People You Want When You Can't Afford Them

Jana Matthews, Founder and CEO, Boulder Quantum Ventures

What keeps entrepreneurs awake at night? Most often, it's money. Business owners toss and turn wondering where to get the money they need for growth—and whether they can afford the right people.

Large corporations have been cutting jobs by the thousands, and have achieved a modern miracle: increased productivity with a smaller workforce. But growing companies have a different problem: the issue is how to attract and pay the people to begin with!

Entrepreneurs need people to make their business grow. They simply cannot develop all the new products and market and sell them and manage the cash flow and run the day-to-day operations. Growing companies need people to grow—but with limited resources, it seems like a Catch-22.

There are creative solutions to this dilemma. Here are five new rules of compensation for a growth company.

Rule 1: There are lots of great people available

The good news about the current economy is that there are a lot of really talented people available. Some were laid off by companies that let the wrong ones go. Others took buy-out packages or early retirement from companies after they lost faith in the management, and are now ready to get back into the workforce. These are motivated people, looking for a challenge and a job that has meaning, as well as a paycheck. Your job is to look for people who are a good fit with the values and mission of your company – people who want to do the job you need done in order to grow. Always be honest. Tell them up front that you don't have a lot of money to pay them – at the moment. But if they join you, they can help change that picture and share the rewards.

Rule 2: You have to offer a lot more than money

The best people to grow your company are people who are looking for more than money. They are looking for a stimulating environment where they can build their skills, be challenged, and contribute to the success of the company. Before they go to work for you, they may scrutinize you as much as you would them. In the wake of an overheated economy, these smart, capable people may be very cynical and skeptical about leadership and management practices. They are checking out a lot of factors – not just the financial compensation you are offering. They are seeking more balance between their personal and professional lives. Offering flexible schedules, job sharing, telecommuting, reduced summer hours, or similar plans can help attract some of these great people. Ultimately, however, what great people want is the ability to make a difference.

Take the time to talk with candidates about your vision and values, and the mission of the company. Show them that your company is a place where they can make a difference. Demonstrate that you value the knowledge, skills and experience they would bring to the job, and let them know they'd have a chance to take risks and be innovative in your company.

As one entrepreneur told me, "If you're going to go after awesome people, you need to know what really motivates them. Often they come up with some very creative things that you wouldn't think of because you're thinking about what would be motivating to you." In other words, don't just guess at what they want or need, ask them. Listen closely to the things that they want – and then try to accommodate their needs.

Rule 3: Venture labor – a creative solution

Many business owners assume they can't afford the people they need to grow their company. They don't understand that some people are willing to take a cut in pay—or no pay at all—for a share in the upside. Not everyone is willing to do this, and financial obligations may dampen some candidates' appetite for risk. Venture labor is one powerful way to bring aboard people you want to hire but fear you can't afford. Here's how a whole community is testing the concept:

In an unique spin on the process where companies make "pitches" to venture capitalists in the audience, CTEK in Boulder Colorado recently devised an event called "Making Business Happen". Seven companies made a seven minute "pitch" to 300 people who were willing to work for a deferred income or on a commission or stock-only basis. The event was sold out in hours, and there are plans to replicate the event on a monthly basis. Within one month, more than 20 people have signed on to work for these companies and others are still negotiating.

While it may not work for everyone, I've seen some amazing people choose to work for less money in a company whose mission has meaning for them, whose leader was sincere and driven, and where there was a commitment to share the rewards with people whose performance makes a real difference.

Rule 4: Recognition means as much as money

Once you have great people on board, you need to recognize your high performers. As one entrepreneur said to me, "It was astonishing how much I underestimated the importance of recognition for employees and appreciation of their work. One reason people leave companies is to go somewhere where they think they're going to get higher recognition." He understands that recognition is one of the elements in his overall compensation package.

You need to recognize the results awesome people produce and the value of their contributions. They want to know that you are aware of the value they bring to the organization. They want you to recognize their contribution, and give them a fair share of the credit. Celebrate your victories and make your people feel like heroes. Don't save all your praise for private sessions; public accolades are important. Build team spirit with celebrations and widespread recognition of both individual and team performance.

One entrepreneur prefers an informal approach: "I have found that daily praise is a good thing. Four words—'Thank you; good job'—go a long way with employees…." Other entrepreneurs have more formal programs of recognition: "We have a recognition program that we call the Rave Program. At every weekly company meeting, we give out Raves, which anybody can nominate somebody for. It's recognition for someone going above and beyond the call of duty, and it usually relates to doing something innovative. There might be a dozen people each week who are recognized with Raves." In addition to public recognition, you might also send a personal note, tickets to a movie, or a certificate for dinner for two as a token of your appreciation.

Rule 5: Make the compensation system transparent and make it fair

No matter if you are building a team or rewarding an existing one, you need a clearly defined compensation system. The system needs to be consistent yet flexible, and it must support your company's mission, vision, culture, and values. Although every company needs to develop its own unique formula, here are some guidelines you can use to develop or assess your compensation system:

  • Base your pay system on consistent formulas that provide fair compensation. Apply them consistently across the organization to everyone.
  • Develop a formula that includes benchmarks based on individual, team, and company performance.
  • Use all three components of compensation: base salary, a performance-based variable such as commissions, and bonuses. Include salary deferrals and contingent compensation, when needed.
  • Track the compensation packages your competitors are offering so you're not at a disadvantage when it comes to attracting and retaining the kinds of people you need for growth.
  • Provide opportunities for profit sharing and/or stock ownership. Plan to share the rewards with the people who produce results.

With a creative compensation system, base salaries don't have to be prohibitively expensive. The variable components allow you to reward employees handsomely when your company hits the numbers. The performance-based variable should reflect many factors, including the employee's role. Higher-ranking individuals should have a greater variable in proportion to their base salary, which should target accountability and create additional motivation. Bonuses and profit sharing are extra incentives and rewards for great performance. Tie them to achievement of goals, not years of employment.

Final thoughts

When it comes to compensation, the issue is not what you can pay, but what you can offer to the people you need to grow. If you're focused on money and the conversation with prospective employees centers on "how much will you pay me?" you are going to get people who will later jump ship for more money. If you look for people who are seeking more than a paycheck, you'll see that some of the best people will come to work for you for even more valuable reasons: your passion for the work you are doing, the culture you are creating, your vision and values, and a chance to share in a future built by working together. With an entrepreneurial approach to compensation, you might be able to "afford" the people you need after all.

(Portions of this article were adapted from Building the Awesome Organization.)

comments powered by Disqus

Search the Resource Center

Stay Connected

Email Newsletter Signup

Want to get connected? Sign up to receive regular news, polls and updates from The Kauffman Foundation.

Email Newsletters

Want to be up-to-date with the latest news and updates from Entrepreneurship.org? To subscribe, just give us your email address below; you'll choose which e-newsletters you'd like to receive on the next screen.