Dear SaaStr: Does paying higher salaries increase employee retention?
Here’s what I’ve learned across 3 startups of my own, and investing in 25+ more:
- Underpaying certainly leads to departures. Employees that are underpaid get bitter and leave. Don’t let it go. Review salaries quarterly, not just annually. And especially, don’t take advantage of those that do well but don’t complain. Eventually, they’ll leave, too, if they don’t feel treated fairly.
- Moderate overpaying does not appear to create any stronger retention. Folks seem to just acclimate to it.
- Year-end and time-based bonuses lead to some retention, but maybe not the right kind. Sales folks, in particular, will stay until a big bonus check. But I’ve found non-sales folks will leave even days before a bonus and don’t care.
- Massive overpaying only increases the retention of the so-so and mediocre. They don’t leave at BigCos when they are paid 2x or more what they could get elsewhere.
- Stock option vesting schedules do increase retention, but sometimes in unpredictable ways. Employees will quit on their 1-year vesting date in many cases if they aren’t bonded to the opportunity. A modest benefit here. They’ll also leave as they become 100% vested, even if staying makes a lot more sense, given the potential outcome. Folks just don’t act totally rationally around vesting schedules. They don’t fully get it.
So IMHE, at least spend a ton of time making sure folks are paid fairly. And equally. Assume everyone else knows everyone else’s comp. And get extra options and equity to those that move the needle.
But overpaying doesn’t seem to help much at all.
A bit more here.
And a deep dive on what Snowflake does to retain its team here: