How to retain vested employees?

Question

At a startup where the senior dev team have been here 3years, almost since the start, and their options are now vested. We have product in the market, are just about cash-flow positive, but are still a few years away from an exit.

How do I stop the team leaving?

If they were really motivated by startup excitement , risk, and options then the logical route would be to leave here, banking the shares, and find a new early stage startup and do it again.

If the product was mature, stable and moving into maintenance then; Fine - they leave and I get a bunch of 'B'-student completer-finishers to grind on. But we still have a lot of hard work to do now that we have customers "to delight".

I can't go to the board and say I need a 50% pay rise for everyone - just to compete with what regular dev jobs pay, never mind what Google/Facebook etc would offer. Especially not if I'm also saying - the all-nighters and weekends stop now we are a regular company.

I can't go to the devs and say; there's no more pay but keep working hard to earn the salesmen their massive bonuses, and your efforts will raise the value of the company and your options will be worth a few % points more.

What do companies do to retain staff in these circumstances?

Answer 1

Especially with a small staff, it helps to know them and to learn what they want in a non-salary sense. Different people are motivated by different things and figuring out who to give what to can make a big difference. Here's some options:

• People motivated most by money - may be good with the promise of a future bonus. Many companies have periodic options reissuance - so while these options have vested, more options could be issued to vest over the next 3-5 years - it's delayed costs and it can be done in tandem with company success (options will vest iff the employee is in good standing, working here at the time of vesting and the companies financial state is XYZ). Similarly cold, hard, cash bonus options that pay off in increments over time.

• People motivated by opportunities - start talking to each employee - what are they trying to grow towards in their careers - give them the work and the responsibility that will get them to that place. Many folks are willing to delay on salary, if they know they are building the skills and experiences that make getting the higher pay later on an easier option.

• People motivated by visible status - some folks feel rewarded if they have a visible sign of status. That may be a bigger desk, an office, special privileges or a nifty title. The goal, though is to connect the status to the work - "If you can do more sales support work, I can justify moving you to an office, since you'll be on the phone a lot and needing the privacy" for example.

• Control, ownership and supportive management that gives good feedback - probably the headiest motivation cocktail for anyone. People will stick around longer if their bosses are fabulous - and fabulous does not mean "nice", "easygoing" or "constantly complimentary" - it the motivation of having a boss who supports you with both the right of self-determination and real feedback when you're screwing up. If you can get your management to this point, you have a really powerful corporate culture that can do almost anything.

• Competitive policies and perks - what specialized perks can you offer that other companies can't? A bidding war is hardly advantageous - so just copying local competition for employees may not be the way to go. But helping people save money for their families vs. giving them more money can often be an option. And people can be strikingly myopic about the money you are saving them. For example, I get all excited over saving $15 on parking, even if it takes me 10 extra minutes, and is less than the cost of my lunch.

There's no 100% retention plan out there. I have a friend who's baseline condition for a "good office" is that he be easily able to keep in touch with the senior levels of the company, as a high level individual contributor, which really becomes impossible at a company of more than 300 or so. He's just not someone who will stick around when a startup gets "unstartuplike". There's not harm here, or reason to bend over to retain this person - he's great, but he's also not intereseted in conforming to some of the processes that make it possible to grow the headcount of a company in an effective way - so he's not the optimal candidate for trying to retain.

Not everyone joins a start up for the same reason. My friend loves the small size, but another person may love the challenge (which doesn't leave when you grow!) and another may just love a smart, close knit team... knowing who needs what is the essence here.

Answer 2

You made a critical mistake when you didn't tie the compensation of the top-level development team to revenues, as the sales staff (apparently) is.

You need to fix that immediately.

Tie the compensation for them (senior developers) to performance metrics that they have at least some control over, and you will see enthusiasm the likes of which even God has never seen! (Sorry - a little Dune crept in there).

Answer 3

Ask your board

This seems to be a serious strategic issue with the compensation strategy of your company. Extra motivation perks will help and you should consider them, but they don't solve the underlying problem.

Salary is a generally believed to be "hygiene factor" in motivation for most people - that is, extra salary won't neccessary be motivating, but lack of salary will be demotivating. If you're saying that the team needs "50% pay rise for everyone - just to compete with what regular dev jobs pay", i.e., you're paying them very significantly below a fair market wage, then that actually is a serious issue that you won't be able to avoid; it's a sign (at least perceived) of disrespect and unfair treatment, so it will be demotivating while it is so.

There is a stage in startups where it is appropriate to pay people below-market salaries. It is not sustainable for too many years. At some point that stage is over, the startup is maturing and you must plan for across-the-board salary reviews to get your compensation in order. Unless your startup collapses, you will have to move beyond that stage, and move your compensation from the current model to market-rate salaries. The earlier employees will have an extra benefit of having [more] equity, but that's not in any way relevant to this year's salary, that was about those previous years.

The question is when should you do that. '3 years', 'cash-flow positive' and 'C-round' are words that may signal that this point may be arriving, but it's a strategic decision that needs to be made. You seem to be in a CTO position - this means that this question shouldn't be solved by you. This is mostly a decision for the board, and definitely for CEO as well - but you should rise this issue to them in a serious manner; waiting out problems and hoping that they go away by themselves usually isn't a good management strategy.

Answer 4

I've been in this situation with one of the most successful start-ups in the UK. I watched over 80% of their technology staff disappear within a few months because the company didn't grow on target (yet they still grew

This is the beginning of the end of a culture of staff who will collectively pull out all the stops to make something happen.

Warn the board that the imbalance between Sales bonuses and Core technical staff has not gone un-noticed, and while sales are important, it's also very important to deliver their promises. A ship needs all hands to co-operate collectively otherwise you'll have a mutiny to deal with.

Expect people to leave. You're actually fortunate to know they are disgruntled. Sometimes they say nothing and expect you to work it out. Even worse they'll tell you everything is fine but they need a change.

More Stock options is a good retainer, as is a token pay rise or good-will bonus.

Nobody like to be taken for a mug, and engineers are smart... it won't take them long to figure out whether the gesture was a genuine sweetener..