What Are The Five Things You Need To Know To Design An Effective Employee Compensation Plan?

I remember having breakfast with the Chairman of the Board of a startup. The Chairman was trying to convince me to join the company as CEO.

I’m not sure how we got on the subject, but we started talking about compensation. Mike proudly told me about when he was CEO of a well known public company in my space (analog ICs) that he posted all his employee salaries outside his office.

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Mike went on to say that posting salaries eliminated the problem of employees wondering what other employees make. He said that before he posted the salaries, there was a lot of fighting.

I understood his logic, but I cringed at the same time.

I was cringing because I thought Mike was infringing on his employees right to privacy. I also think he solved the wrong problem.

You’re always going to hear some complaining about how much someone is making. That’s normal. However, if there’s too much complaining, you’re likely not following the six rules of effective compensation plans I’ve outlined below:

A. You should compensate your employees at the market level.