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Startup Compensation: Is Your Salary Fair?

I was having lunch with my friend in South Park. We were talking about how we set our team’s salaries at TINT – a transparent formula that we use to calculate the compensation for our twenty-person team. He wasn’t sure if he was getting paid fairly at his startup and wanted to use TINT’s formula as a data point to figure it out. His questions sounded familiar because they were the same questions TINT’s co-founders asked ourselves when we devised our salary structure. The most important question being: “What is fair compensation for working at my startup?” Tim, Nik, and I have collectively spent hundreds of hours discussing the answer. Here are my thoughts:

Morality

Before we start, we should address the question that was the first question my friend asked: “Is it fair to even ask?” e.g. Is it immoral to be that guy, the squeaky wheel that gets the grease? At TINT, we’ve solved this problem by being transparent, but my friend made me realize that not everyone has that luxury. From stories I’ve heard from other friends, it’s important to ask the question, especially if you don’t have transparency.

Another friend who works at a large undisclosed company in San Francisco told me about how her manager secretly offered an intern a higher salary than hers, even though she’s been working with the company for the past 2 years. Remember that asking the difficult questions about compensation may be the only way to move up. Don’t feel guilty about negotiating.

Fairness

Fair compensation depends on 3 main factors, which are:

  1. Is it fair in relation to other people on your immediate team?
  2. Is it close to market rate?
  3. Is it fair to YOU?

IS IT FAIR IN RELATION TO OTHER PEOPLE ON YOUR IMMEDIATE TEAM?

At companies with closed salaries, the answer is usually off the table, and even asking the question can feel inappropriate. However, if you can find a way to ask your colleagues in a socially appropriate manner, you should learn more about how others are being compensated. Afraid of repercussions? In the US, the National Labor Relations Act makes it illegal to fire anyone because they shared their compensation within the organization.

Managers have long used salary information asymmetry to try to keep salaries as low as possible, hoping that employees will keep their heads in the sand. But salaries never stay secret forever. It’s a liability for organizations that hide salaries from employees, which makes it even more mysterious why the practice is mainstream. If you are still feeling weird about asking, read these two comment threads on Hacker News here and here.

IS IT CLOSE TO MARKET RATE?

Luckily, answering the second part of the fairness equation is easier than the first. There are a variety of resources to give you a general estimate and range.

The challenge in figuring out your market rate is that every company is slightly different, and every role varies as well. Your own market rate will likely be based on:

  • Location / cost of living – Wolfram Alpha Cost of Living Calculator is a great resource for this
  • Company size/risk – Riskier businesses will usually involve sacrificing salary for equity. But you’ll have to judge whether the potential equity value, increased ownership and other perks of working on a smaller team will outweigh the sacrifice.
  • Growth Opportunity – If the role could be a valuable stepping stone in your career, it could be worth a sacrifice in salary.
  • Job perks – Free lunch, 401k matching, mandatory vacation policy, and other perks should be included in your calculations regarding the total compensation package.

IS IT FAIR TO YOU?

The third part of the fairness equation is the most interesting because it is both the most personal and also the most important component of the equation. It encapsulates your current situation as well as intangible factors that can make the biggest impact in your day-to-day work life:

  • “The Happiness Factor” – A totally subjective value that depends on you. It represents how happy you would be working on this team because of the company’s mission, the people on the team, or the flexibility it’s structure allows. For many people, this is the most important factor.
  • Your potential growth opportunity – If you could grow into a role at an accelerated pace, management may be willing to pay more.
  • Your skills – Do you bring anything special to the table that few others could? List them out, and don’t be shy about bringing them up. An angel dies every time a talented but quiet employee gets screwed by their management.

How do I figure it out?

The resources below will give you a range and you will tweak that range yourself based on the conditions above.

Wealthfront startup salary chart

The strong point of this chart is in how it visualizes the ranges of compensation and the ways it allows you to filter down into its dataset via role and company size. Just keep in mind that sometimes the data available is small, and that many other factors such as the Happiness Factor are not included in the compensation.

Angellist Salary Chart

Although it’s filters aren’t as good, Angellist has a larger and more timely dataset than Wealthfront, and is another great place to begin exploring compensation ranges.

First Round Capital: Startup Compensation

This is a great article if you’re wanting to convince management to adopt a more transparent approach to compensation. It reveals that many large companies do attempt to make some effort to make their compensation transparent, and that even the biggest names in the startup world recognize the fact that good compensation structures are founded on openness and formula.

Buffer Salary/Equity Formula

This formula, from Buffer, that TINT used as the basis for our formula, and serves as a great example of one startup’s salary structure.

Wolfram Alpha Cost of Living

Did you know that Wolfram Alpha can give you a cost of living index between two locations and visualize it? Pretty handy to figure out how location influences your salary range. Sometimes it can make a huge difference!

Quora Startup Salary

Quora has an active community discussing startup salaries and the plethora of questions surrounding them. A great place to browse and explore, there are well-written answers to questions ranging from “Is it worth working at a small startup for no salary but for equity?” to “What technology skill set pays more in Silicon Valley: front-end, back-end, mobile or user experience?“.

Now What?

The worst thing you can do to yourself is to voluntarily remain ignorant about how fair your salary is. I guarantee that if you remain ignorant in a closed-salary organization, your salary will end up being unfair, maybe even less than the intern’s. Unfortunately, most organizations would prefer you to stay ignorant. Educate yourself and fight back against information asymmetry. Or even better, work for a company like TINT that prides itself on fair compensation and implements innovative compensation structures such as monthly company-wide bonuses. Your most valuable asset is yourself, so don’t let people have it for less than you deserve.