Startup Life/Analysis/

Should startups raise salaries in line with rising inflation?

Sifted asked several startups in Europe how they are managing employee compensation under the circumstances.

By Miriam Partington in Berlin

Sami Osman

Before concerns over inflation began to swell in Europe, startups were already fighting tooth and nail to secure the best hires. 

But now, with a recession approaching and living costs continuing to surge, startups are once again figuring out how to adjust compensation to support employees — and ultimately, stay competitive as employers.

As it stands, the minimum cost to hire has increased dramatically, and candidates now expect higher offers.

In 2021 the least you could get away with for hiring a chief marketing officer for a startup was £100k base salary. That lower bound has now moved up to £125k and the average is about  £150k,” says Michelle Cheng, talent director at London-based VC firm Notion.

“This is pretty consistent for every role and people have no patience for low-ball offers. Though the very top end of salaries hasn’t moved up as dramatically,” she adds.

So, how can startups stay competitive during these times? Should they increase salaries to respond to the pressure of the market, introduce more benefits to alleviate costs for employees — or simply ride it out?

We asked several startups in Europe how they are managing employee compensation under the rather gloomy circumstances.

Eliška Mallickova, VP growth at Juno, a London-based employee benefits platform  

Eliška Mallickova, VP growth at Juno, a London-based employee benefits platform  

Companies are having to think dynamically on a lot of fronts right now: how to attract staff in a tight labour market, how to retain and engage current teams, and how to ensure you support them — financially, culturally and emotionally — in a way that reflects the economic landscape.

For companies that have a remote or globally disparate workforce, that introduces another layer of complexity; leadership teams should be designing remuneration strategies that take into account different geographies and fairly reflect the situation on the ground. 

When an economic trajectory is shifting quickly, it’s hard to design for that in terms of salary reviews. Most companies, unless they’re really small, wouldn’t find it practical to roll out salary increases more than once or twice a year. But introducing commissions and performance-based bonuses can help staff take advantage of company growth in a much more dynamic, reactive way and these remuneration opportunities can, by design, flex more freely. 

It’s also important to make sure your benefits strategy is serving staff needs and, crucially, not wasting company money — as lots of benefits programmes are underutilised. Give staff benefits that genuinely add value and support them in their individual needs. Some of which might also provide in-kind payments that reduce their cost of living.

Something we’ve also been exploring in conjunction with our Juno community are cost of living allowances. This is in its early stages, but we’re currently building out data and working with our community of people leaders to create a model that could provide that extra layer of support to employees. This is a good example of how companies should be exploring new avenues, engaging with teams, and thinking outside the box about how they can help.

Sami Osman, cofounder and CEO of Quartr, a platform for investors based in Stockholm

We’re extremely mindful of the economic climate and how our employees can be directly impacted by it. Because of the nature of how our platform works, it’s critical for us to not only track macroeconomic forces, but proactively prepare for them. 

Salaries are just one, arguably short-term, way to look at the situation. We use equity-based compensation to bolster our employees’ long-term financial security, because ultimately as we grow, they deserve to be financially rewarded. This is easier for seed-stage companies at the moment, though, because the latest valuations of growth-stage companies are no longer the future reality.

We are a rapidly growing team of 35 people (and counting), with the majority being engineers, developers and tech specialists, who are typically on higher salaries than standard. 

Over the past year or so, the job market has experienced a major sea change, with the power now lying in the hands of employees and job hunters. With recruitment being very competitive for companies, things like stock options, salaries that corresponded with the actual output, flexibility and worthwhile benefits can make a difference both in terms of recruitment and retention. 

Andreas Kullberg, founder and CEO of Astrid, a personal voice-based language tutor app based in Stockholm

It’s a top company priority to look after our team in these difficult times. We have recently finished a round of salary reviews in which all team members were bumped up to reflect the cost of living crisis. Although we wish we could, we’re just not able at this stage to be one of those companies on LinkedIn talking about 20 or 30% salary increases, or similar.

Ultimately, if you work at Astrid you’re making a bet. You could potentially make a bit more money and enjoy more perks at a big tech company, for example. However, what we can do is offer generous stock options to our employees. Those options become a pension plan for employees in five years’ time. We think that that level of success would dramatically eclipse any short-term salary increase we make right now.

And ultimately we want people to join our team who understand that risk and find it attractive, and who see the meaningful potential of a business like ours.

Irma Dambrauskė, global head of people at TransferGo, a international payments platform based in London 

TransferGo’s mission is to support migrants and empower social mobility, so we are acutely aware of the discomfort that inflation can cause. Nevertheless, it is an economic phenomenon that is for central banks and policymakers to address, not employers. 

Even if we wanted to give everyone a raise in line with inflation, it would be impossible to implement as our people are spread across Europe (we are HQ’d in London, but have teams in Lithuania, Poland, Romania and Turkey). In Turkey, the cost of living is increasing by 70% — it is simply not realistic to expect companies to raise salaries in line with inflation in these circumstances.

Our primary concern is employee wellbeing and ensuring that our people are paid strong, market-rate salaries. We review compensation based on performance and have an equity options programme that rewards our people in a way that isn’t directly affected by inflation.

Antonio Arias Lopez, chief people officer at Quointelligence, a cybersecurity platform based in Frankfurt

This is not a new problem for us: we have seen inflation rise for the past 18 months (Spain’s inflation for November 2021 was already 6.5%, Germany’s was around 5%).

Our approach: in January we agreed to consider double-digit inflation in our business planning for 2022. We then communicated to the workforce that we will be doing compensation rises in Q4 2022.

We didn’t want to paint a big brush through it. So, last week we ran a compensation satisfaction survey to identify how happy various teams and groups were with their compensation. This revealed differences: our new starters are satisfied with the comp they just negotiated, but the employees who have been here before Q4 2021 (mostly senior engineers and team leads) still feel like they need an upgrade.

Many of the folks who were with us before December 2021 are in senior roles — such as senior engineers and team leads of departments. We feel we need to give them a bump up in salary in line with rising market rates and their excellent performance (without, of course, forgetting the employees who have joined earlier this year). 

David Padilla, CEO and CEO of Kenjo, an all-in-one HR platform based in Berlin 

At Kenjo, one way we try to compensate for high inflation is to offer additional social benefits to our employees. This is a payment in kind in addition to their basic salary. From all the benefits, employees can choose the one that suits them best. 

These are some of the financial benefits we offer: regular practice of sport, in collaboration with Urban Sports; meal vouchers; public transport; childcare; medical insurance. Several of them are exempt from income tax and the employee can request to flex his or her salary.

We also offer each employee free and unlimited psychological therapy, based on their needs, and we have an annual budget for training and professional development. Through regular job satisfaction surveys, we have found that these benefits not only have a financial impact and alleviate some of an employee’s expenses.

Michael Becher, chief people officer at wefox, an insurtech based in Berlin

At wefox we are working to mitigate the impact inflation is having on our colleagues. Our area of focus is the rising costs of food and energy in our operating markets.

We have a two-step plan. Our first step is to support colleagues who work partly from home with a monthly €50 home office allowance to help meet the costs of additional energy. We are also implementing tax-free benefits in the form of food allowances, food vouchers etc (in the markets we can) to help with the rising food costs. We will be looking to expand our benefits packages with breakfast and lunch offers, taking the total package to a value of €600k. The second step will activate in Q4 and our next salary round. Inflation will be factored into the recommendations and budget, ensuring our compensation baseline is in line with the market.

Miriam Partington is Sifted’s DACH correspondent. She also covers future of work, coauthors Sifted’s Startup Life newsletter and tweets from @mparts_

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