In this new episode of Alto's Zebra 3, 2, 1 podcast, we interview Sebastian Ross, a thought leader and consultant in the space of People, Culture, and Conscious Business. In recent years, Sebastian has held leadership positions (CEO and other C-Level positions) in several international startups. He is currently the Director of the Founders' School at the IESE Business School in Barcelona, the number one executive education school in Europe.
Sebastian is also the co-author - along with Verne Harnish - of the book Scaling Up Compensation - Five Design Principles to Turn Your Biggest Expense into a Strategic Advantage (2021).
In this episode, Pablo Baldomá Jones, co-founder of Alto, talked with Sebastian about the potential of using compensation as a strategic tool to scale startups. In this sense, Sebastian believes that these systems promote and incentivize behaviors in customers, stakeholders, and employees, generating strategic value for the company.
As summary, Sebastian considered 3 good ideas in this episode for using compensation and incentives to scale companies:
- Be different, be strategic: Compensation has a very relevant effect on talent attraction and retention. In the growth of a startup or scale-up, compensation must be structured to make it strategic and differential. In this sense, Sebastián recommended being careful not to exaggerate and make the system too rigid. Therefore, "compensation systems must be broad enough to provide differential value to the performance of each individual."
- Performance-based compensation: According to Sebastian, not all individuals perform at the same level, and therefore compensation should not be equal. To this end, companies and startups should establish a system that enables exceptional talent to be compensated accordingly.
- Sharing is caring: Compensation for employees typically includes a salary, but it's beneficial to share the value created by a company or startup. Giving team members a share of the company's stock or profits aligns their interests and promotes loyalty. Sebastian argues that this practice "creates equity and avoids the inequality in a global compensation system that is often unfair." It also attracts, retains, and motivates talented employees, and is a matter of fairness. "If we want capitalism to continue working, we need to distribute the value of work in a different way," he added.
Among the two (2) strategic actions that did not work (or have a negative impact) to scale companies are:
- Misuse of incentives: For Sebastian, the misuse of incentives may have to do with maintaining an incentive system that does not correspond to time, or role or is not relevant to people. In this sense, he indicated that "the incentive system must be continuously reviewed as things can change every week." A flexible compensation system may not meet people's needs. "When used correctly, the incentive system has the effect of attracting, but when used incorrectly, it has the opposite effect; that is, it can repel or demotivate talent."
- Delaying the compensation system: Sebastian stated that "this mistake makes it very difficult for any company to scale." Initially, startups and scale-ups need to develop a compensation system that can attract people. However, when the company has 20, 30, or 40 employees, people start comparing their roles and salaries. "Perhaps you cannot pay what the market establishes. Then, after hiring people, it is very difficult to explain the characteristics of compensation." Therefore, Sebastian believes that this system must be established from the beginning. "It may not be intuitive, but it is better to pay attention before it is too late. If you have more than 20 employees, it is time to structure your compensation systems.”
Finally, as a (1) pending strategic action to implement, Sebastian Ross considers:
- Transparent salaries: A system that compensates people fairly that does not generate shame when sharing salaries. In this sense, Ross considered that companies must be able to publish what each role earns, as it allows people to feel secure in their company and position. "In addition, in those cases where a person asks why someone earns more and another less, being able to have a reasonable and logical explanation for these differences. This does not mean that the other person agrees, but having valid and solid arguments for compensation to be a certain way. There are ways to generate this system; one of them is to involve more people in these processes (committees that work exclusively on compensation, that compare, that objectively review this aspect, allow greater transparency)." He added that, "unfortunately," this exercise is not functional for all companies since it requires a lot of strategy and care, making it an ambition for the future.
The Zebra 3, 2, 1 podcast offers the opportunity to learn from experienced business leaders like Sebastian Ross and obtain valuable information about creating business values. Listeners will receive practical advice and effective strategies to foster a solid corporate culture and a unified vision.
At Alto, we are passionate about helping companies scale with technology and analyzing how other factors can help them meet their operational objectives. Stay tuned for upcoming episodes.
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