Why Compensation Builds Trust Before You Say a Word
The smartest startups invest in comp structure early — and what it costs you if you don’t.
A founder once told me “we’ll address comp & benefits in a year or so — after we hire the core team.”
That was three years ago. They’re still hiring.
They treated their people spend like a problem that only bigger companies have to worry about. Fine for now, but they’ll adjust when the growing pains hit.
But it’s not an afterthought. It can’t be. It’s your largest expense as a company.
Not only that, but every dollar — every grant, every pay band, every raise — says something.
We trust you.
We’re playing to win.
We thought this through.
Or the opposite.
If you’re not using comp to send that message, it’s sending one you didn’t choose.
So control the narrative.
“We’ll Fix It Later” Will Cost You
It’s a common reflex. “We’ll clean up comp when we have time.”
But talent doesn’t wait politely for compensation to catch up. Consider this:
70–80% of startup burn is compensation.
Here are three real scenarios companies run into:
A candidate gets two offers. Yours has equity, a basic PPO, and “room to grow.” The other includes a clear compensation & equity breakdown, supporting market data, and a bonus model tied to team outcomes. Who wins?
Your lead engineer brings up pay bands. You stall — because they don’t exist. “Let me get back to you.” She asks her colleagues instead, and builds a spreadsheet with her own data. She updates her LinkedIn a week later.
You're in a board meeting. The investor asks if your sales comp favors individual performance over team outcomes, how short-term incentives are paid out, and how they align to market. Also, burn seems high. You don’t know. They take off their glasses and rub their eyes.
Candidates are watching. A confused pitch costs you A-player talent.
Employees are talking. Slack is a breeding ground for resentment. Missteps erode trust fast.
Investors are thinking. If you can’t explain your largest expense, they may doubt you can scale.
If you wait to take action, precedent locks in. Try fixing a broken equity model at 50 people. Or total comp relevel after three straight “one-off’ hires.
You bleed time, money, and goodwill.
The Good Stuff That Happens When You Get It Right
How do you give candidates clarity, boost acceptance rates, and accelerate hiring?
How do you communicate expectations, align incentives to outcomes, and strengthen retention?
How do you ensure everyone knows the rules, that they apply to everyone, and tighten culture?
You start early.
Even when headcount is low — and (especially) before things break.
The best companies don’t bury their heads in payroll software & HR checklists. They ask:
What kind of talent are we fighting for?
How should risk/reward show up in cash and equity?
What does fairness look like when we can’t match FAANG salaries?
They build a compensation philosophy around this. It doesn’t need to be long — just clear.
Then they create a simple structure: clear role definitions, job levels, and pay ranges (based on data) that tie back to their values.
A repeatable system.
And they talk about it.
In offer calls. In team meetings. During reviews.
Because people trust what they understand.
Confidence replaces confusion. And trust compounds.
What You’ll Risk If You Wait
The cost of employee turnover in an early stage startup rises steeply with seniority —from $30,000 for entry-level roles to $125,000 for technical or supervisory positions, and up to $281,250 for leadership or executive departures.
If you don’t take action early to establish a transparent compensation philosophy and build trust with both employees and investors, these costs can escalate rapidly.
Higher turnover, compounding financial losses and destabilizing your team at a critical time for your company’s growth and survival.
All because you kicked the can down the road.
Make Your Comp Strategy a Growth Strategy
You don’t need to make changes daily. You need a structure you can follow.
Because comp is a message your company broadcasts — intentionally or otherwise.
And people are listening.
If you found this useful, there’s more where that came from.
In this newsletter, I’ll share how real startup teams:
Set pay ranges
Build job levels
Benchmark comp data
Run merit cycles
Refresh employee equity
Measure engagement
Offer wellbeing perks
Handle layoffs and severance
Just what’s working — and what’s not.
Subscribe to get the next one.
Or share with someone building their people strategy from scratch.
Talk soon,
Cris Cafiero
Startup People Spend
Business Consultant @ Sequoia