Reading Time
4 minutes.

The Art of Compensating Right in the US

Summary

The nuances of compensating employees in the US are very different from the norms in India. The US talent market is more mature, with deeper talent pools, fixed compensation bands, and a preference among candidates for equity over monetary benefits. Founders should take the time to understand what motivates candidates and present a differentiated value proposition.

The Art of Compensating Right in the US

The nuances of compensating employees in the US are very different from how it is done in India. The US talent market is more mature, with deeper talent pools and fixed compensation bands. US candidates value equity as a career path and may prefer equity over monetary benefits. Founders should take the time to understand what motivates candidates and to show them a differentiated value proposition of their company. Structuring ESOPs correctly and deciding who gets equity are also part of the equation when hiring in the US.

Heading

Heading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Country: 
US
Date: 
March 8, 2024
Reading Time:
4 minutes.
Intro image.

In the early stages of building a business in the US, founders have to be prepared to learn and unlearn many things. In previous articles, we spoke about how founders should approach moving from India to the US and setting up an initial GTM team in our last piece. However, when you hire in the US, which is a far more evolved and mature startup talent market, what are the nuances you need to be aware of regarding compensation structuring, given the regional and market nuances? In our experience, there are a few fundamental differences between India and the US that play into choosing and adequately compensating your hires.

At first glance, it seems straightforward enough. You know your requirements, you look for candidates, zero in on the right fit, and offer a compensation package that you feel is industry standard. But the way this works in the US differs from how it works in India. Therefore, understanding the key differences and nuances in hiring between India and the US will save time and capital down the road.

We have a few observations from years of hiring and building teams in the US and India that may hold founders in good stead. 

Talent segmentation 

The US has deep pools of candidates who are experts at various stages of company building, owing to the longevity of the startup ecosystem. On the other hand, India is still early and such talent pools are still evolving. For example, how many B2B GTM leaders would you be able to find in India, who have scaled revenue from 0 to $100 million? Or how many sales enablement or partnerships and alliances leaders who have designed functions from scratch? The answers will leave you with few choices, and certainly not enough to give founders enough options to pick from. Such pools will get deeper in India as we see a larger number of successful firms being built.

Compensation bands 

In the US, compensation is benchmarked on the basis of the stage of the startup, size of business and role complexity. There are benchmarks available, created by firms such as Radford, Shareworks and several others, which are beneficial for founders to pick up for company building in the US. 

As a founder, when you step into the US you need to identify who is the right candidate for you. Cash conservation is important for early stage firms, so it is important for founders to understand what motivates candidates to consider long term wealth creation. The answer is your vision for your company, and how well you can draw the candidate into it. A candidate who has built sales for businesses before, for instance, will assess your vision of the product you are building, and the pitch you make about why it is bridging a gap in the market. Most of these candidates have worked in similar cycles of building companies before. You need to show them the differentiated value proposition that you bring to the table. In addition, a better role, say from being a vice president of sales to the chief revenue officer, might be an incentive for some.

Gallery 01 photo.
Gallery 01 photo.Gallery 01 photo.

Find compensation bands

The talent segments in the US are fixed, and the corresponding compensation bands and budgets are pretty standard. So, as a founder, you have to be prepared to pay the industry standard. You will not find a lot of back and forth with the candidates to arrive at a mutually agreeable payscale. It works the other way in India because compensation bands are not yet fixed. 

Another point to remember, the US market is geared towards keeping salary expectations transparent. In New York City, for example, a new law makes it mandatory for companies to mention salaries for job roles upfront, whether it is an internal or external posting.

So, as a founder, it is important you take time to do your research and appreciate the nuances of hiring in the US. For instance, it is not commonplace to ask for candidates’ existing compensation in the US.  

There are firms across the US, which have global and region-specific compensation databases, which are good places to tap into to understand the way these bands work.

That said, these compensation bands are just reference points. It is worth going above and beyond for extraordinary talent. The driving factor is to find the best person for the job, instead of making do with what is available in the talent market. At the end of the day, remember to drive standardisation that suits the geography instead of trying to drive it from your headquarters in India.

Equity/ESOP/Incentives is the standard

ESOP conversations are far more real in the US, given the maturity of the startup ecosystem. Hence candidates have built competencies based on the career stage they are at. For instance, taking a startup from $30 million to $100 million ARR is a playbook which several candidates have a proven track record for in the US. Given this charter, candidates value equity far more than just the monetary benefits. 

The sample structure above is more relevant for GTM roles, where the variable 50% usually depends upon the achievement of targets or quotas for your employee.

How candidates qualify for these variable payouts can have several models depending on the stage the firm is at.

“Your incentive structure should be aligned with the stage of your firm, there is no one-size-fits-all approach. Instead, be open to designing an incentive policy driven in favour of increasing the topline of your firm early on.” 

It is important that your target articulation be clear on issues such as whether this variable component is based on achieving booked revenue or collected revenue.

You do not want to be paying a 100% variable component for just the promise of business. You need the candidate to drive actual sales and revenue. The reason for this is that in the early stages, you’re driving the top line of the business, and booked revenue works because these initial times are about getting more and more new logo acquisitions to experience your product. As your company gets to a growth stage, the quality of the revenue matters more than before, so you want to base the variable compensation achievement on the quality of logos.

This is another key learning for early-stage founders in the US. Your incentive structure should be aligned with the stage of your firm, there is no one-size-fits-all approach. Instead, be open to designing an incentive policy driven in favour of increasing the topline of your firm early on. 

Let’s take advisor compensation as an example. The value of equity can also be understood if you consider how advisors are compensated. It is fairly easy to get in advisors on a per-hour billing basis. It is more economical for the business, but the advisor has little incentive to grow value for you or your business. You can have them spend a few hours advising the business, but there isn’t a surefire way to ensure their advice is followed. On the other hand, if you offer advisors equity, they will have reason to ensure the value of your company grows. 

Gallery 02 photo.
Gallery 02 photo.Gallery 02 photo.
Gallery 02 photo.Gallery 02 photo.Gallery 02 photo.

Who gets equity?

Is it all employees or just the leadership? There is truly no right or wrong answer to this. But our learning has been that in the US, everybody needs to get equity irrespective of the title or the stage of the company. You’re building value for all employees. This is a significant change in mindset because founders in India have different motivations to offer equity in India. 

Once this is understood, the next dilemma founders face is whether the India and US ESOP policies should be the same. The short answer is: they do not have to be. In our experience, US employee benefits are differently aligned. 

The one thing founders should do, however, is have their India leadership team understand and align with this new mindset. This could be done through discussions with their chief human resource officer, external consultant, or investors. The key is to get someone to help you drive information through data that is already out there. This is important because ESOPs have regulations and tax implications. 

How to structure ESOPs?

Standardisation is the name of the game in the US where the standard is vesting ESOPs in the US market at 25% every year. At Lightspeed, we advise all our companies to avoid lopsided ESOP structures. We advise on ESOP policy structuring for all our companies, and work with all our founders in the US to help them draw an ESOP policy in line with the US standards. 

ESOP – Best Practices

Some companies in India use imaginative ways of vesting. 

This is not standard. Avoid this in the US. It is not the norm and will be considered predatory by many because the majority of the employee stock is vested in the last two years. 

“Most of the candidates have worked in similar cycles of building companies before. You need to show them the differentiated value proposition that you bring to the table.”

The learning for the founder here is to think of your employees in the US as coming in for a larger vision and a longer tenure. As the founder, you offer value addition to this employee. Lopsided vesting design concepts, whether in compensation, cash, variable pay, or ESOPs, mean you’re not thinking of the benefit of the employee. 

Finally, it is important to understand that nothing works in silos. When you are hiring for different roles in the US, you have to take people in your company along with you. The leadership, especially, has to be on board to appreciate the standardisation in the US. 

So as a growing business, it will do you good to understand these significant differences and scale to new heights with the best talent that the US market has to offer. 

#salary #negotiation #crossbordertalent #talent #incentives #ESOP

All views and thoughts expressed herein are the personal opinion of the author and should not be construed as any advice, financial or otherwise. Any reliance placed on this content must be at your sole prerogative and basis your own independent judgement.