Startups are notorious for having very little money to spend to pay employees and they face steep competition from major corporations who are willing and able to spend top dollar to hire away a startup’s employees. Faced with this, startups use a few hacks to hire and retain talent that you can adapt to keep employees through a transition in ownership or acquire top talent to your private business.
Golden Handcuffs
Golden handcuffs refer typically to a set of financial incentives that are designed specifically to encourage employees to remain at a particular company for an extended duration of time. The objective is to hire talent on lower salaries than they can make elsewhere by offering them an ownership stake in your company which offers them a long term financial upside in the form of profit sharing or if there is a liquidation event, like an acquisition or IPO of the startup.
The basic premise in tech is that employees are granted equity in the business that vests at regular intervals and accrues over time. However, no company owner wants to give away part of their company to just anyone so here are the tactical ways startups reduce their risk.
“The Cliff”: if an employee leaves earlier than a particular tenure, often either 1-2 years of full time employment, the employee forfeits all equity.
Back loading: Instead of vesting equity evenly over the agreed upon period of time companies increase the rate of vesting for employees who have been at a company longer. For example, if an employee is receiving 1% ownership over 5 years. The accrual schedule might look like this.
| Total Equity | 1% |
| Accrual Period | 5 years |
| Year 1 | 0.05% |
| Year 2 | 0.10% |
| Year 3 | 0.20% |
| Year 4 | 0.25% |
| Year 5 | 0.40% |
Visible Perks
A business owner once joked with me that he avoided unionization at his plant by offering free aspirin in the employee bathrooms. What startups know that other employers often forgot is that every day perks that are visible to employees in common areas make people feel valued. They provide a constant reminder that the company cares about their wellbeing and considers them more like friends and family than assets to be managed. Startups are written about all the time in the press for things like ping pong tables in the common area, free snacks and candy walls. Even if you are just providing free coffee and snacks in the common kitchen you might be surprised at the positive reception from your employees. You might be focused on your margins and think this is an unnecessary expense but at the end of the day coffee and asprin is a lot cheaper than traditional benefits and a whole lot cheaper than training new employees. Just try to make sure the perks you are offering benefit the majority of your employees without alienating a few.
Positive Workplace Culture
Employees are spending most of their waking hours working with you, if they are unhappy they will leave the first chance they get no matter how much you are paying them. You can’t read tech news today without running across articles about corporate culture and emotional IQ (or EQ). I’ll admit it is a bit overblown but that doesn’t mean you can’t benefit from all the research in this field as well as the opportunity to learn from other people’s mistakes. If you are succeeding in business, you probably know a thing or two about keeping your customers happy. Keeping your employees happy is just an extension of what you are already doing well and the best part is that maintaining a positive workplace culture costs you nothing!
We talked about how to build a positive culture at every one of our executive off sites at my old employer and here are a few themes that might help you succeed at it as well.
Good management is not about being nice it is about being fair. This is what most managers get wrong if you have a bad apple on your team get rid of them fast before you lose the respect of your good team members. Even if it is just someone not carrying their weight for a period, make sure you understand the issue and communicate it appropriately to the members of your team who are picking up the slack.
Set your team up for success not failure. If your team is failing to meet the goals or targets you set there is a reason why and the obvious answer is not the incompetence of your team members. Make sure the goals are achievable and that your team has the proper support to achieve what you need them too. What else can you set up to help your team be successful. If it is an individual who is failing, then see if perhaps there is an alternative role at the company that better utilizes that individual’s strengths. Most employees are aware that they are not succeeding and are grateful for the help.
It is okay to have fun at work. You need to be professional in what you do but that doesn’t mean you can’t have a good time too. Team lunches, Halloween parties and ping pong during breaks are all good ways to build friendships between team members and thereby increase loyalty to your company. It is also a good way to show that you are human and not just a boss.
Loyalty of your employees has a huge impact on the long term viability of your business. Hopefully these techniques help you retain and attract more great talent to your organization.