Today's Edition

• 🔍️What Your Compensation Philosophy Signals to Investors & Talent

• ❤️ Los Angeles Fire Department Foundation

• 📆 Transform 2025 Discount Code

🔍️What Your Startup’s Compensation Philosophy Signals to Investors & Talent

Your compensation philosophy isn't just about paying people: it's about telling a (persuasive) story to both your talent and your investors.

After achieving product-market fit, your ability to attract and retain exceptional talent becomes the primary constraint on growth. Yet according to PWC’s “The way we work - in 2025 and beyond” report, only 16% of startups believe they're well-prepared for the dramatic shifts happening in compensation strategy.

Here's what the top-performing startups are doing differently:

Strategic Comp Design

Most companies focus solely on the obvious: salary and equity splits. But the most thoughtful leaders are doing things different and earlier in their lifecycle as a business. They're establishing comprehensive compensation philosophies that serve as both a talent attractor and an investor signal.

Sequoia’s recent compensation & equity report data shows that 72% of high-growth startups are using financial metrics (ARR mostly) to determine short-term incentive payouts, signaling a shift from traditional individual performance bonuses toward team-based incentives. This isn't just about changing how people get paid, it's about fundamentally reshaping how compensation aligns with company goals.

Consider this: startups that align compensation with team outcomes are 72% more likely to hit their growth targets (SignalFire 2024). Why? Because they're not just paying for individuals, they're investing in the collective. If we make more, you make more.

Leveraging Data to Build Investor Confidence

Let’s line this up with the founder’s responsibility to their investors/board. Here’s a quick example:

While 81% of startups say they target technical roles above the 50th percentile for compensation, only 22% have a clear strategy for communicating the ROI of their compensation philosophy to investors (Sequoia's 2025 Compensation and Equity Report). This gap represents a massive opportunity. If you signal you’re paying above the average, you have to communicate why and be prepared to accept the costs of setting that precedent for future hires.

Smart founders are now using compensation data analytics to tell a compelling story to investors. They're showing how their compensation strategy:

• Optimizes cash burn while maintaining competitiveness.

• Attracts talent that would typically go to larger companies with established job levels & an employee option pool allocation strategy.

• Creates alignment between team performance and company outcomes.

After all, 75% of a company’s spend is on their people. Investors will have a keen interest in how that cash is being spent.

The Psychology of Comp & Benefits

One of my favorite books of 2024 was Alchemy by Rory Sutherland, which in part discusses rational vs. psychological decision making in business. He might point out, the perceived value of compensation often matters more than the actual value. This makes the practice of establishing pay ranges & job levels to desirable titles even more important (see the controversial thought piece by Ben Horowitz on the value of titles here).

This is where thoughtful design becomes crucial. According to PWC, 89% of employees value lifestyle incentives, such as flexibility and autonomy, more highly than traditional cash bonuses, compared to 73% that say base pay is important. This would indicate as long as base pay is in-line with the market, other incentives will outpace base comp in terms of importance.

The same philosophy applies to benefits. According to Sequoia’s 2024 SMB Benefits Benchmarking report, for companies with 50-99 employees offering a PPO plan, the employer contribution percentages are:

• Employee Only 90% (median)

• Employee + Family: 72% (median)

If you fall below that for cost savings purposes, what does that signal to your current & future talent? If you’re confident in your compensation & benefits philosophy, you’ll be able to communicate this reason effectively. If not, it’ll be a tough conversation to have with candidates.

The rational reason for offering quality compensation & healthcare to employees is to be competitive for talent, reduce cost of turnover, and have higher productivity from healthy works.

The psychological reason, however, is to remove the cognitive load of dealing with healthcare, reduce the uncertainty around navigating personal finances, establish an identity marker as a company that takes care of its people, and signal organizational stability & competence. That’s an important mindset shift for early-stage startups.

Key Takeaways:

For founders and CFOs, this means developing compensation strategies that:

• Demonstrate strategic thinking to investors with prepared board decks which highlights comp philosophy, cash burn, benefits spend, and equity overhang.

• Create team-based performance incentives that align individual goals to company goals.

• Leverage data analytics tools for decision-making & communication to align employee compensation & benefits strategy with investors, HR, and finance.

• Balance cash preservation with talent attraction, benefits, and perks.

For HR leaders, the mandate is equally clear. Modern people execs are now strategic architects of organizational success, having evolved beyond traditional admin/tactical roles (sure, they can spend time on compliance & HR admin, but why would they when talent acquisition & engagement is actually revenue generating?).

The winning playbook for HR leaders includes:

• Using predictive analytics that align with finance to make data-driven decisions about headcount planning.

• Creating flexible career frameworks that support both vertical and horizontal growth, stimulating employee engagement & hiring.

• Developing compensation structures that reward team performance while maintaining individual motivation through job levels, merit planning, incentives, etc.

• Implementing & building scalable HR infrastructure that can support rapid growth post-PMF with a lean & geographically distributed team.

I consult directly with startups on establishing their total rewards philosophy in comparison to their larger competitors. If you’re reading this and wondering how your company stacks up, reach out so we can run through a benchmark together!

❤️ Los Angeles Fire Department Foundation

LA continues to burn from these devastating fires. Many families have lost their homes and need immediate support for temporary housing, food, and essential supplies. Here are some available resources:

• Sign up for free safety alerts: CA gov alerts

• Disaster Help Center Resources from the California Dept. of Social Services

• Emergency Management Resources Emergency Preparedness Guides 

• Wildfire Safety | American Red Cross Safety Checklists

• California Statewide Wildfire Recovery Resources  Recovery Resources

Please consider donating to the California Fire Foundation. Every contribution helps provide direct assistance to affected families.

As a Hermosa Beach resident in South Bay of LA, my heart goes out to everyone impacted by this disaster. Together, we can help our neighbors rebuild.

“The California Fire Foundation provides critical support to surviving families of fallen firefighters, firefighters, and the communities they serve. Your tax-deductible donation will help us commemorate fallen heroes, offer scholarships to children of fallen firefighters, provide aid to victims of fire or other natural disaster, and provide fire safety resources to underserved communities across California.“

📆 Transform 2025 Discount Code

Transform 2025 is the premier gathering of business leaders, investors, and entrepreneurs focused on transforming the now and next of work for the better.

Come join me to learn, get inspired, and connect with your peers.

I’m lucky enough to have a discounted partner link that offers $200 off the normal ticket price!

Register now with my partner link to secure the lowest pricing:

Thank you for reading and joining on this journey with me!

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