Has your company passed the hundred employee mark?
Congratulations! You’ve crossed the threshold to officially becoming classified as a medium sized business. According to The Small Business Association, that means you’re larger than 99.9% of companies in the country.
But that also means change is coming. Fast.
This approximate headcount milestone is when many organizational, financial and operational challenges kick into high gear. We know this firsthand, as Pave passed one hundred employees recently and had no shortage of our own growing pains. Exponential growth has a widespread effect on all startups. There are a whole host of issues now present that previously were not a consideration.
One major category of changes is around compensation planning and communicating.
At a hundred employees, a company has no doubt hired many managers, and a small team of human resources professionals. Many people leaders are about to start formalizing their merit cycles at this point. Some will be transitioning from running more ad-hoc comp reviews into more structured systems. While other people leaders might be running the very first merit cycle.
Khalid Halim, the legendary startup coach whose clients are valued in the tens of billions, says this transitional phase is due to the law of startup physics. Humans grow linearly and startups grow exponentially, he said in an interview with First Round Review:
“Human beings grow biologically and linearly. A year from now, you will be a year older, there's no growth hacking we can do to make that happen faster. A company, a collection of biological systems called humans, can grow exponentially. Especially in tech, companies exist in a world in which you can be serving a hundred customers one day, and a million a year later.”
So what do these changes look like on the ground?
Pave works with people leaders every day from growing startups that fit this very profile, and the patterns are clear. Here are some snapshots. See if they resonate with where your company is on its growth journey.
At one hundred or more employees, the operational load of trying to do manual comp planning has reached a point where it’s unsustainable. The spreadsheet and algorithms that are used in the comp review have become almost impossible to manage and are getting increasingly more time consuming for many reasons.
The additional columns in the spreadsheets means there are more manual inputs where columns go to QZ. Also, more people means more managers, so your spreadsheet is sliced by team, sent to managers where they send in their recommendations, and then are rolled back into the master spreadsheet. And not all of these come back with accurate data.
Lastly, the final unscalable trait of manual spreadsheets: mail merges. This is time that should be filled with celebrating the end of this arduous process, where instead human resources teams will spend days matching employees to customized templates.
The operational challenge at many organizations of this size is, human resources teams won’t notice that they need a solution until it's too late. Human resources professionals see their comp as manageable, but then they blink and their headcount has dramatically increased. By the time their next merit cycle comes around, the extreme level of growth becomes overwhelming.
Now they’re stuck trying to do a spreadsheet based merit cycle for one hundred and fifty people. And after the mess has passed, only then do they start searching for a scalable comptech tool.
Do those operational changes resonate with your organization? Are you trying to be curative when you could have been preventative?
Once you hit a hundred employees, your leaders will need greater structure for compensation philosophy and decision making to prevent company goals from being diluted. And since your employees crave more guidance from their managers in terms of career growth and financial understanding around equity, ad hoc approaches to communicating internally about comp compensation no longer suffice. More hierarchy requires more communication.
Dunbar's number explains this phenomenon. He's the anthropologist who first suggested the idea of a cognitive limit to the number of people with whom one can maintain stable social relationships. As the theory goes, this limit is a direct function of human brain size. After your tribe or company or village gets to about a hundred and fifty people, the neocortex's processing capacity can no longer cope.
There’s a leadership element a company loses once they hit a hundred employees. The scrappy interpersonal dynamic quickly disappears, which creates an inability for leaders to communicate effectively and field comp questions on an individual basis.
Considering these inevitable changes that happen to a startup, anything that helps a company scale can make a big difference. Pave works with people leaders day in and day out to help their managers become compensation leadership. Our product helps them programmatically create messaging they can distribute to all their employees at scale when merit season comes around. Be gone spreadsheets!
More and more startups are harnessing the power of comptech to be preventative, not curative. And while the right solution helps people leaders get out of spreadsheet hell, it’s bigger than that problem alone.
The more important strategy is about providing a unified platform for comp benchmarking, planning and communicating to be done in a fair, accurate and transparent way. Because the last trend people leaders want is for employees to start leaving because they weren't given the comp increase they deserved, or because they didn’t fully understand equity.
That’s one of the many downstream effects of managers not being aligned with clear guardrails. They might not flag someone who actually deserves a raise. Or one of their employees will leave because they don't understand that their equity adjustment is worth potentially more than a significant salary bump.
Once people leaders learn to get ahead of those compensation related problems, they can get time back to focus on the other thirty priorities that fall on a human resources professional’s lap. After all, comp and total rewards are just pieces of their job, not the whole pie.
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Even if your startup is only at, say, seventy or ninety employees today, that number will change rapidly. Many companies Pave talks to on a daily basis are in hyper growth mode, and they’re seeing fifty or sixty percent growth year over year. They’ll pass that hundred employee mark before they know it!
Now, that progress is a wonderful accomplishment indeed, considering how many small businesses fail within their first few years.
The challenge is, when a company is so focused on growth, compensation planning and developing a unified comp philosophy often go on the back burner. It’s a process that used to be manageable, but has now become impossible.
If your company is near or at the one hundred employee headcount milestone, our suggestion is simple: Get ahead of it.
Invest in comptech early, so your bandwidth expands after implementation.
Upgrade your human resources technology stack before you need to. That way, when the pain of compensation planning and communicating scales beyond manual spreadsheets, you’ll be equipped to evolve right along with that growth.