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“The last couple of years of compensation have been probably the craziest that I’ve ever seen. And I’ve been working in comp for over 20 years now,” Josh Steinfeld, principal product strategist at Carta, a total compensation platform, told HR Brew.
Startup compensation, in particular, has been particularly susceptible to volatility in the wake of a 2021 hiring boom that saw HR departments scrambling to fill labor demand. This boom cycle came to a halt when the Federal Reserve started raising interest rates to slow lending, and venture capital funding slowed considerably.
In 2023, pay at startups returned to a “new normal,” as starting compensation flatlined and salary bands for certain roles narrowed.
Equity compensation declined, while starting pay flatlined. As of September, salaries for startup employees in a number of different roles—including customer success, engineering, and HR/recruiting—were down just 0.7%, on average, from Nov. 2022, while equity compensation was down 37%, according to Carta data. In the HR sector, the drop was more significant, with the average salary down 2.1% as of September, and equity down 51%.
Courtesy of Carta
Equity—a form of compensation that gives employees partial ownership of the firm where they work in the form of options, restricted stock units, or shares—went way up when companies were competing fiercely for talent, Steinfeld said.
But equity compensation declined sharply as economic conditions changed for both private and public companies, Steinfeld added. Venture capital fundraising rounds declined, prompting startup founders to be more responsible with their equity pools. And as many public companies dealt with falling stock prices and valuations, “They basically couldn’t afford to give the same value grants as they [had given] in the past.”
Salary bands shrink. After falling by 0.7% between Aug. and Nov. 2022, and 0.2% from Nov. 2022 to Feb. 2023, salary benchmarks for startup employees held flat through September. This narrowing of pay benchmarks indicates companies are now less willing to go “way over the top” on their offers to candidates, Steinfeld said.
During the boom cycle, startups might have had a “win at all costs” mentality when it came to matching a salary to lure a candidate from Meta or Google. But as economic conditions worsened, “They started to kind of come back to Earth a little bit, in terms of the actual offers going to candidates,” he said.
Looking ahead to 2024. Going forward, Steinfeld said he’ll be curious to see how startups adjust their talent strategies should interest rates start to fall, paving the way for more funding.
“Will people take some learnings from the last year, and maybe not go…all out, even when they do have more resources?” It’s a particularly pertinent question for AI startups, as candidates with AI skills are reportedly commanding annual salaries close to $1 million.