We always love talking with Sanj Sanampudi. He’s an expert on compensation - and gets both philosophical and down in the weeds whenever we talk. You’ll get the point after you read these notes. Sanj is the CEO & Co-founder of Concert Finance, software that provides real-time sales commission reporting and plan design recommendations.
1: Position Equity Honestly.
Don’t oversell it. Tell candidates We're giving you a lottery ticket and we think we're going to win the lottery. We think we're doing the right things such that we've chosen the right numbers.
Employees should understand that equity is nominal and it isn't readily convertible to cash. It doesn't have an open market value. It is not the thing that is going to help you focus and do your work better.
Founders tend to position equity incorrectly to their employees. The purpose of equity is really about making people feel like part of the team. You own this company, you have a major impact. This is really the soft team building part.
Options will likely be worth zero. In the best case scenarios, they might be able to cash out and buy a car. Additionally, equity is very hard to understand; there tends an asymmetry between what employees think options are and what they are in reality - technically, legally and logistically.
If options were incorrectly positioned at the outset, employees might completely devalue their equity, adjust their performance consciously or subconsciously and resent the founder.
2: Ask candidates what they need.
Sanj encourages all early-stage startups to lead comp conversation by asking them what they need in order to feel focused at work. If someone is concerned about paying for gas or rent or childcare, they’re probably not going to be able to focus on work. They’ll likely be less creative and adaptive; they’ll more likely be stressed and distracted.
Tips on getting an honest answer:
- Emphasize the importance of a thoughtful, honest answer.
- Give them time to think about it. You don’t need the answer on the spot.
- Let them know your own constraints. I want you to do your best work here, though, since this is a startup, pls understand I can’t pay you your most optimal salary. (Remember that optimal salary is not the same as what someone needs to stay focused.)
- Kick the tires so that you feel confident they’re putting thought into it. Ask them questions about how they arrived at their answer. Ask them what they considered.
3: Titles are part of the comp package.
Flexibility around titles is a powerful tool. Sanj thinks it’s an easy way to give someone something that matters to them (within reason).
This is controversial. Titles and hierarchies are things first HR hires have to clean up one they are hired. But Sanj Sanj pointed out that those HR hires had that problem, because the company got to the place where they could hire them. The reason they got to that place is because of the team that they hired along the way. And titles were important to those critical first hires.
4: Think of incentive comp as GPS.
Incentive comp - like bonuses & commissions - are a feedback loop that helps team members optimize for the right behaviors and get timely information on whether they’re on or of course.
So what you're trying to do with any incentive is say, where are you going? How do you get there? Use milestones to check where you are. Are you on track or you're off track? Did you take a right when you were supposed to take a left?
Rather than reward sales reps only on closed deals, Concert rewards (and incentivizes) them to meet milestones along the way. Those milestones, like high quality discovery calls, are leading indicators in the upper funnel about closings at the bottom of the funnel. They have measurable value to the team, and they help hone the sales reps’ behavior during the early stages
5: Beware of the cashflow trap.
Most teams manage incentive comp from cashflow perspective - like 10% commission on a sale or backing into the commission that works for the P&L. Sure, it rewards the ultimate right behavior - closing a deal. But the sales rep and the team will learn less about what it takes to get a deal to that point - and have fewer intermediate anchor points to flag whether a deal is on the right path or not. This is particularly punishing when sales cycles are very long.