Question: What method/process do you use to determine pay raises for employees?
Balance Loyalty and Merit
"In addition to equity for early employees, we also use the length of their tenure to calculate their compensation. This might sound outdated and rather bureaucratic for a startup, but it helps retain early employees, which is a positive signal to the rest of the team. Of course it can't be nepotistic, and performance always counts. But both need to be considered."
Listen to Fellow Employee Praise
"Although this is not the only strategy that we use when it comes to raises, we do implement a "peer praise" option in our weekly employee survey. In this survey, employees can give a "shoutout" to a peer who they thought went above and beyond, did a great job and really achieved their goals. This kind of organic (and anonymous) praise helps us determine who is really shooting for the stars."
Use Goal-Oriented Evaluations
"All of our employees have goals based on their job descriptions and duties. We then have reviews based on those goals. Were they met? If so, were they exceeded? If not, why? We use these goals as a way to measure both individuals and teams to track and measure progress. If they exceed their goals, then they are qualified for a pay raise. The amount is determined based on performance."
Look at Employee Self-Assessments
"An objective performance evaluation should be used as a basis for pay raises. However, it shouldn't be the only thing used. Instead, I find that using an employee self-assessment of performance is critical to whether or not it's time to raise employee compensation. Is the employee maxing out potential? Do they feel they have more to give? Leverage self assessments to drive greater performance."
Look for Effort Beyond the Call of Duty
"We had an intern who went beyond the call of duty to achieve something special for the company. He ended up getting an unexpected raise. For a startup to become successful, it's really important that everyone puts in more than 100 percent, and that's how I think when it comes to raises."
Use Tiered Percentage
"I offer bonuses to employees who out-perform their peers on a quarterly basis. For end-of-year and mid-year raises, I would recommend raising by percentages. Set specific (realistic) goals that you want employees to achieve, and use tiered percentages to reward them. I often throw in little bonuses for those who far exceed my expectations."
Schedule Six-Month Reviews
"In our five years in business, our compensation plan has changed every year. Originally we offered a ton of equity. After raising money, we switched to offering more cash. Now we're somewhere in the middle. We have six-month reviews as an executive team to plan our financial future, after which we run our employee reviews. We will eventually standardize, but we accept the need for flexibility right now."