Should all employees at your early stage startup be at the same organizational level? Who should be designated as a VP and how do you show employees a sense of career progression? How do you decide how much to pay the new hire? And what salary increments to give to your existing team?
These are perplexing questions for any early stage venture. In a large corporate, there is an established grade structure and career ladder, with salary benchmarks defined for each position and grade. Each company has its own rationale for creating these but the typical approach is to assess the worth of each job through job evaluation. The fundamental premise of this is that jobs are static and that responsibilities are clearly defined. It is seldom so at a startup. It is virtually impossible to delineate roles and responsibilities in the dynamic growth environment that startups operate in. Moreover, the last thing you want to encourage in a startup is for employees to restrict themselves to a set of narrowly defined tasks.
That said, you can’t operate without any structure either. Yes, for lateral hires, their level and salary in the previous job could serve as a proxy at the time of hiring. But what happens once they have been with you for some time? Or what if you hired someone from a totally different industry/ background because of their personal capabilities? As you grow, you will find the need to form a core team that extends beyond the founders. Who should be part of that team and how do you justify it? How do you tell your superstar that you hired from campus what’s next for her?
Competencies – a solution to the problem
Here is a simple and intuitive approach for managing organization levels and pay in a startup – competencies. Don’t get overwhelmed by the jargon; competencies are just behaviours, knowledge, skills and abilities that impact the success of employees and organizations. Communication, Business Acumen and Customer Focus are some key competencies for sales. Innovation, Technology Understanding and Teamwork are some key competencies for engineering. By breaking down these competencies into proficiency levels, we are able to create a means of measuring and tracking capability. Eg: Communication can start with ‘Routinely conveys information’, build to ‘Influences others through persuasion’ and reach ‘Negotiates on long term/ strategic issues’ at the highest level.
Using Competencies to define levels
As a HR consultant in my last avatar, my most challenging project was to develop a job levelling framework for India’s most exciting, high growth startup in the mobile space. The company had reached a critical mass but was continuing to grow at a break-neck speed. Roles were changing almost on a fortnightly basis. The approach – no prizes for guessing – was to use competencies!
Here is a simple, 5 step approach for defining job levels using competencies. If you find the text a bit confusing, you could also refer to the case study.
1) Identify competencies: Start by listing down all the knowledge, skills and behaviours that are key to your company’s business. Make a laundry list of everything that you think is important. Then, club related items on the list to eliminate redundancies and select 5-6 that are most relevant and universally applicable. Eg: You may have listed ‘writing emails’, ‘making phone calls’ and conducting face-to-face interactions – these can all be clubbed together as Communication.
2) Define proficiency levels: Now for each competency, define unique levels of progression. To keep things simple, I would highly recommend that you keep just 3 proficiency levels (in larger organizations, competency models may have upto 5 levels). The key here is to define proficiency levels that are easily distinguishable from each other and show a clear progression. Eg: For Innovation, you could look at the following:
L1: Follows established process
L2: Modifies existing processes
L3: Conceptualizes new processes
3) Create organization bands: The last thing you want at a startup is to have unnecessary hierarchies. In my opinion, for a company with upto 50 employees, 4 bands are ideal. Call them anything but from a responsibility level, these are:
a. Executes tasks under supervision
b. Executes tasks that require planning and/ or supervises others
c. Devises tactical plans and takes operational decisions
d. Devises strategic plans and takes critical decisions
As your company grows, you can break these bands down further. Eg: The first band can be broken into 1) Requires high supervision and hand-holding and 2) Requires general supervision
e. : This is the most critical step. For each band, decide the minimum proficiency level that is required on each competency. You may also opt for greater flexibility by putting a minimum number of competencies on which one needs to demonstrate a proficiency level of x. Eg: Suppose you have 5 competencies, each having 3 levels. For the highest band, employees must demonstrate a proficiency level of 3 on at least 3 competencies.
4) Assign bands to employees: There are both formal and informal ways to do this. If you work closely with each employee and have seen them perform, you can do a quick self-assessment. More rigour can be achieved by asking employees to rate others on each competency through a survey. The most a scientific approach is of course, to conduct formal assessments through structured tools, but this could be expensive and time-consuming. Whatever approach you select, I would highly recommend that you ask the employee to also to a self-assessment. This will help create buy in or at least tell you where there are likely to be issues.
Now that you have organization bands in place and employees mapped to these bands, you can set about making pay decisions. Employees in similar bands should not be paid very differently from each other. If someone falls in a higher band but the salary is comparable to employees in a lower band, this may be a case for rationalization. Likewise, if you are looking to hire someone and assess them at a particular band but their salary expectation is comparable to those at a higher band, it may not be a good idea to hire this employee.
Defining competencies could be a tricky affair. You will find several resources online but I would warn against doing a straight copy-paste – context is important. Also, try to involve at least 1-2 more people in your team when defining competencies. This will reduce personal biases and lead to higher acceptance. Importantly, note that creating job levels and managing pay is just one way to use the competency model. As you grow, the competency model could become the base for learning and development programs and managing career progression.