Startup compensation guide: From adhoc decisions to strategic pay structures

“I reckon a £50,000 base salary seems fair, and is affordable for us – but let’s also offer a 1% equity stake to get them over the line.”

This might be exaggerated for effect, but it is a relatively accurate representation of how compensation decisions are made for early hires in a startup.

It’s typical to see finger in the air decisions. A salary based on the founders’ gut feeling of what seems like a not-offensive salary offer whilst being manageable for a cash-strapped early-stage startup. Heavy on the equity, because that’s a way to make the overall compensation package more attractive to win those all-important first team members.

There’s nothing inherently wrong with this in the early days.

But as the team grows, the lack of structure behind how pay decisions are made becomes a big problem – inconsistencies quickly become inequities and employee frustrations on pay and progression start to arise.

Implementing clear pay structures sooner rather than later is a must to stop those inconsistencies getting out of hand as you scale and support pay equity and retention goals.

In this startup compensation guide we’ll cover everything you need to know about how to put that all-important structure into place – with advice from experts like Hannah Reif, who did just that at Luminovo.

When is the right time to introduce compensation structures as a startup?

There’s no definitive answer to this question, like "at Series A" or "once you hit 50 employees" – the reality of startup compensation planning is more nuanced than that.

We spoke to Hannah Reif, People Lead at Luminovo, about her experience of introducing pay structures for Luminovo.

She shared two key lessons learnt:

1. When the pain of inconsistency outweighs the benefits of agility, getting structure in place to guide compensation decisions is a must
2. With startup compensation structure it’s a case of ‘the earlier, the better’.

When the pain of inconsistency outweighs the benefits of agility, getting structure in place to guide compensation decisions is a must

For Hannah, the right time to introduce formalised pay structures was when the pain of not having them became too much.

“For Luminovo it was when we reached around 30 full-time employees or 40 in total,” Hannah explains. “We were hiring regularly and having frequent conversations about compensation, but every salary offer was a case-by-case decision.”

“It was starting to take up a lot of time and headspace for the founders, the People team, and the hiring managers involved to decide on the right offer because there was no framework for making that decision.”

“We were also hearing a lot more confusion and questions from employees about their pay and their growth pathways in the company which managers felt they didn’t know how to address.”

“It became tricky and it was causing pain across the organisation, and that was ultimately our catalyst to put structures in place to inform those pay decisions.”

Rather than waiting for a predetermined milestone, therefore, Hannah’s advice is to keep an eye on the pain and these triggers like increased hiring and regular employee queries.

“There will come a point where if a stakeholder was to ask you why the company needs more structure around pay, you’d have an immediate answer spoken from the pain of existing processes,” she says, “and that’s when you know it’s time.”

With startup compensation structure it’s a case of ‘the earlier, the better’

Those painful triggers are the sign that you need pay structures now. But, as Hannah puts it: “If there’s no pain yet but you’re keen to be ahead of the curve before it becomes an urgent necessity, that’s even better”.

Introducing new structure and decision-making processes inevitably means making changes to how compensation packages have been set up for existing team members – as well as potentially how their job role and progression opportunities have been defined – and communicating those changes across the team too. 

Change management is never an easy task, but it’s much easier when you have 10 employees than when you have 100. 

Kaylie Boogaerts, Director of People at Checkly, emphasised this when asked what advice she would give to someone implementing a compensation framework for the first time. 

“Change management was the hardest part of the process,” Kaylie explains. 

“New hires understood and bought into our model from the word go – many of them even choosing to apply because of our transparent pay calculator. The same wasn’t true for existing employees who were being told their salary would now be openly shared, so ensuring clear communication and addressing concerns was a big part of the project.”

With this in mind, it’s generally a case of ‘the earlier, the better’ when it comes to when is the right time to introduce pay structures to a startup – if you can introduce structure before the pain becomes noticeable, then you’re already setting the team up for success.

Vaso Parisinou, Chief People Officer at Ravio, has seen this pattern repeated across the multiple high-growth startups she's worked with. 

"You don't need overly complex frameworks when you're tiny – there's no need to over-engineer if you've got five employees," Vaso explains. "But if you're starting to think about pay structures around the 20-30 people mark, then you're on a really good path."

This proactive approach to startup compensation structures comes with several business benefits:

• Reduced decision-making burden Without clear compensation structures, each pay decision requires extensive discussion, research, and comparison – valuable time that founders, leaders, and hiring managers could dedicate to strategic initiatives that will drive your startup forwards. 
• Efficient scaling. As we’ve seen, implementing pay structures at 20-30 employees is considerably less complex than retrofitting structures when you have 100+ people and years of adhoc compensation decisions to reconcile. Starting early means your framework can grow organically with your organisation.
• Prevention of pay equity issues. Without structured compensation approaches, early discrepancies in salary decisions can compound over time to create significant pay gaps that become increasingly difficult to fix later. With pay equity legislation like the EU Pay Transparency Directive ramping up, this now poses serious legal risk. 
• Consistent candidate experience. Clear pay structures enable recruiters and hiring managers to share compensation information and negotiate salaries with candidates with confidence and consistency. This can be particularly important in tight-knit startup communities, where candidates often know one another – inconsistent offers for similar roles could damage your employer brand, while structured approaches signal professionalism and fairness. 

What’s the right place to start with bringing structure to startup compensation?

Once you've decided you need to introduce more compensation structure to your startup, the question becomes: where do I start?

It can feel overwhelming.

But it doesn't need to be – you don't need to implement an elaborate system with hundreds of salary bands and job levels straight away. 

Rather, it’s all about establishing the core framework that will inform consistent compensation decisions and provide clarity for existing employees and new hires as you scale. 

When implementing pay structures at Luminovo, Hannah found that the natural place to start was firstly with the company’s compensation philosophy and then the level framework.

Start with your compensation philosophy

“The first step should always be to define your principles,” Hannah says. “This ensures that every individual employee's compensation package is derived from the same set of core values and criteria.”

“In a startup environment it's key to do this with founders as primary stakeholders, because they’ll typically have strong opinions about the team and culture they want to build.”

When Hannah was introducing pay structures at Luminovo, for instance, the company already had two core operating principles: ‘putting people first’ and ‘building great things’ – which directly informed the compensation philosophy Hannah built.

In terms of ‘putting people first’, the commitment to building a culture of open communication and psychological safety meant that transparency was crucial – with clear documentation to ensure employees could understand the approach being implemented, and open communication to enable dialogue and feedback. 

In terms of ‘building great things’, the need for a high-performing and innovative team meant that a fair and competitive approach was a must – compensation defined by reliable market data, base salaries and equity benchmarked at or above market rates with no negotiation, location-based to maintain competitiveness for a remote-first team, clear performance and progression structures to enable employees to focus on their job without worrying about growth.

Then, build a levelling framework as the foundational structure

"From there, my advice would be to start with job levelling – which is what I did at Luminovo," Hannah explains. "The level framework is really the core of our whole pay structure.”

Job levelling creates a common language that defines what makes a senior engineer different from a mid-level one, or what distinguishes a manager from a senior manager. 

This structure is vital for accurate comparisons both internally and with market benchmarks.

"Before you start looking at market data, you need to have a clear understanding of what a junior level or a senior level is at your company,” Hannah emphasises. “You have to be able to map benchmarks to your internal reality and know that you’re comparing the same job role and level within the data – otherwise it’s confusing instead of insightful.”

"Plus by having a levelling framework, you can really get a clean view on any pay gap issues too," Hannah notes, "because you can then directly compare how you pay people on the same role on the same level."

This approach aligns with Rob Green's experience too. As a global total rewards consultant who has worked with companies at all stages of growth, Rob sees job architecture as the “foundation of compensation” and job levelling as “the backbone of job architecture”, making it the best starting point for putting pay structures in place. 

"Companies often jump straight to market data – but without a job architecture in place, the numbers won't match your internal reality," Rob says, "you're benchmarking blindly."

It doesn’t have to be the most comprehensive level framework in the world, it just needs to define how you think about the different seniority levels in the organisation, and be flexible enough to scale with you as you grow and add additional levels in.

Rob Green echoes this advice from his work with fast-growing companies: "Put in place a simple and agile framework that gives the structure you need to ensure fair and consistent decisions, and build on that framework as the company expands and more structure is naturally required."

Hannah points out that the growing focus on pay transparency and compensation tools for startups means that it’s much easier to get a simple level framework in place today. “If you use a tool like Ravio then you’ll get your roles and levels mapped to a pre-defined levelling framework,” she says, “it’s not rocket science to get those levels in place nowadays.”

It doesn’t have to be the most comprehensive level framework in the world, it just needs to define how you think about the different seniority levels in the organisation, and be flexible enough to scale with you as you grow and add additional levels in.

Rob Green echoes this advice from his work with fast-growing companies: "Put in place a simple and agile framework that gives the structure you need to ensure fair and consistent decisions, and build on that framework as the company expands and more structure is naturally required."

Hannah points out that the growing focus on pay transparency and compensation tools for startups means that it’s much easier to get a simple level framework in place today. “If you use a tool like Ravio then you’ll get your roles and levels mapped to a pre-defined levelling framework,” she says, “it’s not rocket science to get those levels in place nowadays.”

Of course, there may be nuances that you want to add to any templates or pre-defined frameworks that you decide to adopt.

At Luminovo, for instance, Hannah implemented a relatively standard framework with eight total job levels across individual contributors (IC) and managers.

But, to align with Luminovo’s desire to bring structure, clarity, and objectivity to pay progression and performance rewards, she also introduced a sublevel structure wherein each job level has three sublevels within it which define more granular progression steps within each role.

This means that employee pay progression is directly related to their career development – if they demonstrate the capabilities and competencies needed to progress to the next sublevel or level, their salary will be increased to reflect this, with no subjective performance ratings in sight. 

Once you have these foundational elements in place you can gradually add more sophistication to your compensation structures. 

Full step-by-step guide: How to build pay structures for your startup

So, we’ve heard Hannah’s advice to start with the core philosophical principles that will inform compensation decisions, and then move onto building a level framework.

But where do you go from there? Here’s the full checklist of steps to take when introducing pay structures to your startup:

• Step 1: Compensation philosophy
• Step 2: Job architecture – including job title conventions, role definitions, job levelling
• Step 3: Compensation benchmarking
• Step 4: Compensation bands
• Step 5: New hire offer framework
• Step 6: Compensation review process
• Step 7: Manager training
• Step 8: Employee communications
• Step 9: Feedback, iterate, improve 

Let’s take a closer look at each of these steps

Step 1: Compensation philosophy

A compensation philosophy is the foundation of your entire pay structure – a formal document that outlines your company's approach to employee compensation and the guiding principles behind how all compensation decisions will be made.

Think of it as your North Star for compensation, ensuring all decisions are made consistently and in alignment with your startup's values, culture, and business priorities.

Defining the compensation philosophy for your startup means:

• Ensure clarity on your company's core values and culture
• Engage the company’s founders and leaders to understand their vision for how employees should be rewarded – building alignment across key stakeholders on the philosophy is absolutely critical for success
• Define a set of clear guiding principles based on the information gathered – it can be helpful here to look at examples of how other companies approach their compensation philosophies
• Document these principles in a formal ‘compensation philosophy’ 
• Communicate the philosophy to all key stakeholders – this will definitely include line managers and anyone involved in recruitment or progression conversations, and depending on your approach to transparency it may also include all employees.

Step 2: Job architecture

Job architecture is the framework behind how job roles in your organisation are defined, titled, and organised – bringing structure and logic to the way roles are classified and compensated, creating the clarity and consistency which is vital for strong pay structures.

As we saw earlier, Hannah recommends starting with the level framework as the core structure, and levelling is a central element within job architecture, which covers:

• Job families: grouping related roles into clear and scalable categories like Engineering, Product, and Marketing.
• Job levels: defining the career tracks and levels of seniority within the company
• Job roles: creating a clear description of all roles within the company (ideally including future hiring plans to future-proof the structure), their responsibilities at each level of seniority, and their relative worth compared to other roles
• Job title conventions: establishing consistent job titles across the organisation – particularly including how job titles will relate to job levels to avoid job title inflation becoming an issue over time. 

For startups implementing their first job architecture, Rob Green, Founder of Darwin Total Rewards, advises: "Keep it simple and flexible. You don’t need to build a hugely complex job architecture for 100 people – you'll end up overengineering it."

Step 3: Compensation benchmarking

The next step is getting access to reliable market data to understand what market competitive compensation actually looks like – known as compensation (or salary) benchmarking. 

This step is vital for making informed new hire salary offers, as well as ensuring existing employees are paid fairly and competitively to avoid attrition issues.

With the job architecture now established, you can accurately map your internal roles and levels to your chosen benchmarking data provider’s framework, meaning you can be confident you're making like-for-like comparisons. This mapping is crucial – without it, you risk comparing apples to oranges and making compensation decisions based on misleading information.

It can be tempting to use free sources like Glassdoor or job adverts on platforms like LinkedIn or Indeed to get a feel for the talent market without incurring costs.

But this is very risky – these are not reliable data sources, and the cost of benchmarking wrongly can be significant both for payroll costs and for employee retention.

As Alastair Fraser, Rewards expert and Founder of Justly put it when we spoke to him about how to get CEO buy-in on the budget for reliable benchmarking data: “The cost of replacing headcount should be, from an ROI perspective at least, enough for senior leadership to see the value of accurate benchmarking data.”

Step 4: Compensation bands

Salary bands define the range of pay that each role and level can have.

They're the crucial next step that brings together your compensation philosophy, job architecture, and market benchmarking data into a structured framework for making fair and consistent pay decisions.

With accurate benchmarking data in hand, you now know what competitive compensation looks like for each role and level in your startup. 

Salary bands take this a step further by establishing minimum, midpoint, and maximum salaries for each position – creating clarity around consistent pay decisions for new hires and progression for existing team members.

Plus, salary bands also help with accurate budgeting for hiring and compensation reviews, promote pay equity by highlighting potential disparities, provide a framework for transparent compensation communication (including sharing the salary range for new roles, which will become a requirement soon), and define clear pathways for employee pay progression.

The most typical approach is to use the market benchmark at your target percentile (based on the market-based decision in the compensation philosophy) as the midpoint of the salary band. 

In the below example for a company which targets the 75th percentile to attract top talent, the midpoint for the P3 Software Engineer in London salary band is £79,300 – aligned with Ravio’s benchmarking data.

The width or range of the salary band (min to max) is then decided based on expected pay progression.

For instance, if you hired the P3 Software Engineer at the band midpoint, expect them to be in that role at that level for five years, and expect them to receive an average salary increase of 3% per year then the width needs to reflect at least this level of progression (which would be to a salary of £87,293 in this example). 

A standard width is around +/- 15% either side of the midpoint, but is entirely dependent on your company’s approach to progression.

The ideal scenario is to build a full-scale salary band structure which includes separate salary bands for each job role and level (and location if relevant).

However, many startups choose to start with department-level salary bands to keep things manageable whilst the company is still relatively small.

As your company grows, you can gradually introduce more granular role-specific bands and refine your approach.

Remember that salary bands aren't static. They should be regularly refreshed against current market benchmarking data to ensure they remain competitive.

One final note – if equity compensation and variable pay are important components of your total rewards approach, you might also want to build the same band structure for those components, or for total compensation as a whole.

Step 5: New hire offer framework

A new hire offer framework provides clear guidelines for recruiters and hiring managers on how to determine the right salary offer for each candidate – ensuring fairness while maintaining flexibility to close top talent.

The structures you’ve already built are key to this. 

The job architecture means there’s a clear understanding of the different roles that you’ll be hiring for and what different levels of seniority look like for that role. The salary band structure defines how the role is compensated at different levels.

This means that during the hiring process the recruiter or hiring manager simply needs to level the candidate, assessing their current skillset and impact against the progression framework for the role to understand where they should sit within the salary band for the role – all you need to do is document this formally to provide guidance for all involved and ensure consistent evaluations are made.

It’s also important to consider the company’s stance on salary negotiation too. Some companies (like Luminovo and Buffer) have a policy of no salary negotiation to avoid inconsistencies and inequities arising within the team. On the other hand, it can be important to have flexibility around new hire offers to be able to secure top candidates. 

Remember that new hire offers establish anchor points for future compensation, so getting them right from the start prevents costly corrections later.

Step 6: Compensation review process

A regular compensation review process is essential to ensure employee pay remains fair and competitive over time. Without this, compensation can quickly become outdated relative to the market, leading to employee engagement and retention issues.

This process typically spans several months and involves multiple stakeholders – so it’s an important one to define. 

The most common approach is an annual review, though some startups are moving to more frequent cycles to keep pace with rapidly changing market conditions and have multiple opportunities to fix any inconsistencies or issues.

There are several key factors to consider when planning your approach: 

• How you will keep employee compensation in-line with the current market – the compensation review is typically the time to refresh salary bands in line with the latest benchmarking data, and make any market adjustments needed.
• How performance might influence pay adjustments – if your startup has opted for a pay for performance model within the pay philosophy, performance reviews and pay reviews may go hand-in-hand and so you’ll need to include the plan for assessing and rewarding employee performance here too. 
• How employee progression will be monitored and rewarded – it’s also typical to use the compensation review period as the time to award promotions and to reflect the new level within salary bands.

It may also make sense to use the pay review as the time to perform a pay equity analysis and address any inequities which are identified. 

Beyond this, it’s also crucial to consider roles and responsibilities within the compensation review. 

Some companies choose to keep ownership of pay adjustments within the People team for consistency, whilst others will hand over the reins to line managers to determine the adjustments for their team based on a defined budget and recommendations from the People team. Finance is also an important collaborator for setting (and sticking to) budgets.

Step 7: Manager training

Even the most robust pay structures will fail to deliver consistent, fair compensation decisions if managers don't understand how to use them. 

Managers are the primary touchpoint for compensation discussions with employees – from initial offers to promotion conversations to compensation review outcomes – making their understanding of your frameworks essential.

Manager training should particularly focus on three key areas of compensation responsibility:

1. Creating new hire offers: Managers need to understand how to accurately level candidates against your framework and determine appropriate offers within salary bands. As mentioned earlier, this includes guidance on negotiation parameters and approval processes for exceptions.
2. Discussing pay and progression with team members: Managers should be equipped to explain the company's compensation approach, answer employee questions, provide feedback on career progression, and communicate pay decisions clearly and confidently.
3. Participating in compensation reviews: Managers play a crucial role in performance assessment, calibration sessions, and communicating review outcomes. They need to understand the criteria, timeline, and their specific responsibilities in the process.

Training should include a mix of self-serve materials (such as comprehensive guides, FAQs, presentation recordings), interactive workshops where managers can ask questions and practice difficult conversations, and regular refresher sessions before key compensation moments. 

For new managers, compensation training should be a standard part of onboarding.

Remember that your company's approach to compensation will evolve over time, so build a system for keeping managers updated on changes to frameworks, processes, or market conditions. Regular check-ins with managers can also help identify areas where additional guidance or clarification is needed.

Step 8: Employee communications

Clear communication with all employees about your compensation approach is essential – building trust through a strong understanding of the core principles behind pay decisions and what their career and pay progression could look like with the company.

This clarity doesn't just benefit employees – it also reduces the time managers and the People team spend fielding questions and concerns about pay.

Plus, with pay transparency legislation like the EU Pay Transparency Directive coming into force, organisations will soon be required to provide clear information about pay structures to employees.

Beyond the legislative necessities, the level of transparency you choose will depend on your company culture and compensation philosophy. More and more companies are opting for a transparent approach where employees have access to some or all salary bands.

For Hannah Reif, when building pay structures at Luminovo, transparent communication was an important part of the process – with employees brought along the journey with her, and information now openly available for both employees and new job candidates.

This is partly due to open and honest communication being a core value of the company, but also due to Hannah’s own belief that more open conversations about compensation are much needed. 

“Our employees are intelligent and they can handle complex information,” she explains, “Plus, if you are confident about your approach and you have answered all the 'why' questions, then personally I think there's no reason to keep compensation information from an employee. If we are sure about this, why are we keeping it a secret?”

Regardless of the level of transparency you land on, effective employee communication on compensation should:

• Start with the why: Explain the philosophy and principles behind your compensation approach before diving into the details of how it works. This helps employees understand the rationale behind decisions.
• Build understanding incrementally: Introduce compensation concepts gradually rather than overwhelming employees with all the complexity at once. Start with the foundations (philosophy, level framework) and build from there.
• Provide multiple touchpoints: Use a variety of channels to communicate about compensation – all-hands presentations, written documentation, small group sessions, and one-to-one conversations all have their place.
• Create accessible resources: Develop clear documentation that employees can reference whenever they have questions about compensation, including FAQs addressing common concerns.
• Lead with empathy: Recognise that compensation is a sensitive topic that affects employees' lives well beyond the workplace. Approach all communications with understanding and care.

Step 9: Feedback, iterate, improve 

Pay structures are never "finished". 

That’s especially true if you're introducing them as a relatively early-stage startup – the frameworks you've built are a strong foundation, but they need to evolve and expand as your company grows and matures.

Actively seeking feedback from all stakeholders is essential to this evolution: 

• Job candidates can provide insights on how your compensation approach compares to competitors
• Employees can share their understanding of the structures and highlight areas where clarity is lacking
• Line managers often identify practical challenges in implementing frameworks day-to-day
• Leadership stakeholders can help ensure alignment with shifting business priorities and upcoming hiring plans. 

Regularly reflecting on your startup’s pay structures is key. 

Perhaps your job architecture needs more granular role definitions as your team expands, you need additional levels as you hire leadership roles, your salary bands need adjustment as you enter new markets, or maybe you’re getting feedback from employees that they’re confused about equity compensation. 

Why Ravio is the best startup compensation tool 

Building effective compensation structures as a startup doesn't have to be overwhelming. 

Ravio is specifically designed to help growing startups establish strong compensation foundations quickly, and scale them seamlessly as they grow.

Get the right foundations in place from day one

• Automated job levelling framework: Don't have job levels yet? Ravio's team will map your employees to our proven levelling framework, giving you the essential structure Hannah Reif identified as "the core of our whole pay structure" at Luminovo.
• Eliminate the decision fatigue with real-time market benchmarking: Skip the unreliable Glassdoor data and costly, outdated startup salary surveys, and access 350,000+ live data points from 1,400+ tech companies, updated continuously through secure HRIS integrations, so you always know what competitive compensation actually looks like.
• Relevant peer comparisons: Filter by industry, headcount, funding stage, and location to ensure you're comparing against companies you actually compete with for talent – not legacy enterprises that don't reflect your current startup reality.
• Create salary bands in 30 seconds and eliminate decision fatigue: As Hannah experienced at Luminovo, "every salary offer was a case-by-case decision" taking up significant time and headspace. With Ravio you can easily turn your compensation philosophy into professional salary bands that are aligned with market data, and refresh them at the click of a button.

Scale effortlessly as you grow

• Start simple, add complexity gradually: Begin with basic company-level salary bands and add sophistication (per department, per role, per level, per location) as you scale – without needing to start from scratch every time.
• Integrate once, stay relevant forever: Connect your HRIS system once and automatically stay current with market trends. No more manual data updates or yearly survey purchases.
• European regulatory compliance built-in: As you expand your team and pay equity requirements become a concern, Ravio’s in-built pay equity software makes EU Transparency Directive compliance a breeze.
• Compensation expertise on-demand: Get strategic support from dedicated customer success managers who understand startup compensation challenges. It's like having a compensation expert on your team without the full-time cost.

More helpful resources when building pay structures for a startup

Getting the right pay structures in place for your startup isn’t an easy task – and it’s often done by team members who have no previous experience with compensation management.

Insights, advice, and examples from experts who have gone through the process many times can really help.

So, beyond this startup compensation guide, here’s a few additional resources which might be helpful along the way:

• The Justly guide to salary benchmarking and pay transparency. Alistair Fraser (Founder of Justly) has been building startup compensation structures since 2010, initially as an in-house Reward leader and now as a consultant partner – his guide encompasses all of his learnings from that time in a clearly structured and accessible way. 
• Compensation strategy examples – Ravio’s compensation stories series. Examples of how other companies approach compensation help to put all the theory into perspective. Take a look at how Buffer, Checkly, and Netflix approach Rewards.
• More examples – FNDN podcast series. Matt McFarlane, startup compensation expert and founder of FNDN, has a series of short interviews with startup compensation leaders where he dissects their approach to Rewards.
• Jessica Zwaan’s three-part series on performance and compensation. Now COO at Talentful, Jessica Zwaan's career has focused on People Operations. Her Medium series on pay and performance is a must-read for startups adopting a pay for performance model – part 1, part 2, part 3. 
• Complete guide to equity compensation. Equity options can often be a particularly important element of total rewards for startups, a way to compete for top talent with larger companies who are more cash rich and able to offer higher base salaries. Our complete guide covers everything you need to know to build the right equity approach for your company, including insights from the Ravio equity benchmarking database on what typical equity grants look like.