Understand your startup team’s true motivations beyond a paycheck
When my employees ask me for a raise, I stare at them in awkward silence for a few seconds: Should I sign the check or tell them they’re insane?
Most HR professionals recommend biting your tongue and not responding immediately. Performance consultant Dick Grote suggests a simple, three-word sentence: “Tell me more.” Take a deep breath, listen, make notes.
Why does your employee demand a heftier paycheck? Are they barely able to afford their rent, or has their friend just returned from Bali telling them they deserve a 5-star vacation too?
After twelve years of negotiating countless salaries in my startup (before and after our acquisition), I learned seven particular motives why an employee knocks on my door asking to bump up their paycheck. Keep reading to learn how to ace any raise request like a pro.
An investor or a big client can fill your bank account overnight.
As your startup floods with dollars, so will your inbox with salary raise demands. Everyone wants a piece of the golden pie. How should you respond?
First, remember you’re not Robin Hood running a charity. Keep everyone grounded in reality. Check your business plan and milestones: If you want your cash to last 18 months, plan for at least 24 months of runway. Profitability takes longer than you think. Jacking up salaries today might put the company at risk. What would your employees do if they were you?
Second, make sure your staff understands the value of their stock options. They are in it for the exit, not the crappy salary.
Nevertheless, talks about a million dollars in the future won’t pay your employee’s rent today. If your team struggles to pay bills or has other offers, your financing round could ‘finally’ become the time to bump up salaries. Do it if you can afford it.
As a founder and CEO, I paid myself a Mickey Mouse wage for years. As a company leader, having the worst pay in a startup is incredibly powerful.
I once interviewed a CMO candidate who wanted an astronomical salary. I told her: “Look, I get paid $40k (or whatever), and I am the CEO. Why do you think you should be paid more?” Smart people won’t argue they should earn more than their boss.
This works well with business people: marketing, operations, etc. However, the story is different with engineers. They are in such demand that you often have no choice but to pony up their monthly paycheck. Just make sure you pitch all the perks of being in a startup: autonomy, fun, shares, the opportunity to grow, and learning how to build a business from the ground up.
So here is the skinny: if you are getting paid little — tell them. But if you are cashing in beyond your employees’ imagination, consider gearing down on your lavish lifestyle — at least until you can afford market salaries for your staff.
You just signed acquisition papers at your lawyer’s office, snatching a pot of gold at the end of the rainbow.
Tears are running down the faces of your employees who’ve worked so hard all these years. No more promises. Finally, their paper stock options transformed into real cash. Yet, the euphoria won’t last long.
The daily routine and normality set in after a week or two. People will scratch their heads: “Yes, I got paid for all the blood and sweat, but now what? Why should I keep working for the same salary?”
If you are like me, who remained the CEO after selling his company, you will likely discover a flood of emails asking for a raise.
When your startup gets acquired by a corporation, your employees become crew members of a larger ship with a seemingly bottomless well of money. Your staff will argue they deserve to earn more, and your arguments of surviving from one financing round to the next will not hold any longer.
Besides, an acquisition marks the end of a startup journey for many early hires. The big guys have taken over the ship’s command. The times are over for a wild young company that did whatever it wanted. For many employees, it’s a loss — and they want you to incentivize them to keep working for you.
Analyze pay rates inside your parent company. Look at their posted job descriptions to compare your employees’ duties, skills, and requirements. Do some digging to find what your industry pays. Be competitive when it comes to your employee’s compensation.
Denying an employee a raise after the acquisition will likely result in them looking for another job within the next six months. So consider what value your employees bring to the new table. And compensate for the change.
A few years ago, I noticed one of my most devoted marketing employees slacking off at her job. Once motivated and passionate working bee turned into a passive office sloth. One day, she knocked on my door, asking for a raise.
I told her: “I’ll give you a raise. But will it make you happier?”
“Absolutely,” she replied. Four weeks later, she resigned.
Here is the thing: Cash isn’t the primary job motivator for skilled creative professionals. An employee asking for a raise may be having a deep motivational crisis. Granting these employees a raise doesn’t solve the root problem and can only make things worse. It’s like trying to cure an open bone fracture with a Band-Aid.
Before signing a check, verify that your employee is happy with her job. Ray Dalio has a fantastic recommendation on how to nurture your employee’s job satisfaction.
Ray uses so-called baseball cards to check whether his employees have the right skills and abilities for the job (here is a link to my how-to guide). If they are missing the skills, train them. If they don’t have the abilities, move the employee to another position. A happy employee has the right skills and abilities in a job with responsibilities as clear as daylight.
The problem behind employees’ raise requests can be hidden inside us: their managers.
Being an entrepreneur is tough. Michael Gerber writes that a founder must juggle three personalities every day: entrepreneur, manager, and technician. It is an emotionally starving job that quickly turns anyone into a disgruntled, eggy, and eccentric leader.
I remember my first years raging around the office, foaming at my mouth whenever someone made a mistake. My employees hated me for it: “If you want me to stay, you should pay me more so I can tolerate your daily tantrums.”
But most employees will never say to your face that they want more money for their emotional struggle with you. Employees are only able to give you feedback if you are capable of receiving it. Silicon Valley’s notorious examples of verbally aggressive leadership and lack of empathy prove toxic leadership ends in a disaster (think Theranos).
Some founders are so busy changing the world they ignore their employees’ feelings and emotional needs. Your people want to be heard and understood. Sit down and reflect on how your employee feels without judging them (this empathy guide by Marshal Rosenberg can change your life).
So here is the skinny. You can resolve a raise request without spending a single cent. Look in the mirror and check if your listening skills need some polishing. A good boss should also be a good human being.
One day, my son returned from school demanding the latest version of the iPhone because his friend had just got one.
We grow up, but our desire to keep up with the Joneses stays. Seeing our neighbor driving a better car and living in a bigger house hurts. We want it all, too, because we feel others are no better than us.
Comparing yourself to your peers inside and outside the company is one of the strongest arguments for demanding a raise. Some of my employees complained they earned less than their friends.
But here is the thing. Don’t compare apples with oranges. Not every employee, company, and role is made equal. Bigger companies pay more, but they offer less freedom and breadth of experience than smaller startups. Would they be happier working for a corporation?
“But managers doing the same things as me earn three times more in other companies.” Sure, the head of R&D in a Fortune 500 company will take a paycheck ten to twenty times higher. But the budget and team size of these high-ranking executives is hundreds of times larger than that of a manager in a small startup.
You are working hard to grow your company to the size where your employees earn more than their friends — but you are not there yet.
Working for a small startup is like being an investor earning his MBA — you learn how to create and run a business while working for a future payoff. If your employee complains about their salary, ask them if they still like this idea and whether a startup is still the right place for them.
A few years ago, I promoted a humble, smart, and dedicated intern to a full-time product developer. Unfortunately, as his role grew, so did his ego.
He bragged the company wouldn’t survive without him. One day, he called me and demanded a raise, threatening to leave immediately. Without receiving a raise, he resigned the same day.
The ego does terrible things to people and their teams. So how do you spot employees with overblown self-pride?
Watch out for employees who stop listening and make quick decisions without proper planning and thinking. No one has the magical powers to predict the future. An overblown ego is a poison that fogs your mind from all the good stuff: constructive critique, good advice, and healthy self-reflection.
When an employee in your team gets bitten by the ego fly, I will refuse any raise request: “First, get back to the ground, clear your responsibilities, and listen to others. Until then, my negotiation table is closed.”
But what is “fair?”
Every employee will give you a different answer. Moreover, the answer may change from one day to the next. A sudden influx of cash, personal financial struggles, or deeper motivational issues: each situation requires a unique approach. So the leader must understand the motives behind his employee’s raise request. Take the time to listen and collect data, and you will navigate these conversations like a pro.
Ultimately, a great leader ensures his team feels valued, motivated, and supported — while balancing her company’s financial needs.
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