Top 5 HR Mistakes & Compensation 101

Last week I attended a course on Attracting, Hiring and Retaining the Best People. It was session 1 of 3 organized by StartupDigest University, the insider’s guide to the startup world. Yesterday was session 2 and the topic was Top 5 HR Mistakes & Compensation 101.

“Right now there is a war on talent. The entire technology sector is hiring, virtually every startup (alive) is hiring, and VC’s are even creating newsletters to help their startups hire. Hiring is the most important function of a startup founder/CEO. With the talent war raging, it is clear that finding and hiring the best people is one of the most challenging aspects of an entrepreneur’s job. Developers are elusive and expensive, and it’s hard to find a business or marketing person among the noise.” ~ StartupDigest

This evening had 2 great speakers which filled the event with tactical knowledge and inspiration rather than just inspirational rhetoric. There was no bullshit. The folks in the room were A-players, smart and were thirsty for education which would serve as the arsenal of hiring tips and tricks.

Here’s what happened.

Brian Helmick, Founder & Managing Partner at Algentis

Brian Helmick, Founder & Managing Partner at Algentis

Brian Helmick, Founder & Managing Partner at Algentis

About Brian:

  • Brian Helmick is the founder of Algentis, an HR Software & Services firm that simplifies operations for small and medium-sized businesses by assuming the burden of HR administration.
  • Algentis provides a technology-enabled service offering which seamlessly integrates HR compliance, payroll, benefits, and insurance.
  • Algentis helps startup clients with all the headaches associated with HR, so entrepreneurs can focus on the core aspects of their business.
  • Website: http://algentis.com/

The presentation notes covered 5 HR mistakes:

1. Misclassification of Workers

  • There are strict IRS guidelines and the choice isnt yours. Learn those guidelines or speak to a specialist.
  • Most startups break this law.
  • If an employee is made to work strict 9-5 hours on a computer provided by the employer then they are labelled as an “employee”. Else, a contractor. Some employers get around this label by adding computer expense into employee’s salary vs providing them the tool/s.

2. Errors in Hiring

  • Improper interview questions – personal type like age, race, state etc. this can lead to being sued should the unsuccessful candidate believe it was due to these personal questions they were not hired.
  • Hiring for skills and not fit. Companies change so hire for fit to make sure to retain great employees.
  • Ask for candidate references and then ask the references for another degree of references. You need to really know how this person is and not what their friend (reference) scripted.

3. Improper Documentation

  • Don’t use your friends legal documents. They are not fit for your purpose.
  • Average cost to defend against an employee claim is $150K.
  • On average, most HR issues are not seen until the company hits the magic 20 employees.
  • Poor documentation of performance, attendance & misconduct. When you document make sure it is stored in a safe & secure place.
  • Wrongful termination award is $125K.
  • Do quarterly reviews – to speed up the process get the employee to do self reviews and no more than 3 questions with a scale.

4. Errors with Employee Terminations

  • Too slow to fire – always. Nobody ever complains about firing somebody too quickly.
  • An under-performer is incredibly costly financially, your time and morale.
  • A lot of this is due to the “termination discussion” which is not fin and mostly emotional.
    • Start with the conclusion and keep it short.
    • Make it clear that the decision has already been made.
    • Be sensitive of the other person’s feeling – do not let it get personal.
    • Severance is highly recommended to minimize getting sued especially if the employee is volatile. But do not make this a policy since it can be used against you.
    • If the employee threatens to sue you. End the conversation and contact your lawyer.
    • Finally, always give the final paycheck on the employee’s last day.

5. Unsuitable Benefits & Insurance

  • Workers compensation insurance of at least $100K is legally required.
  • Choosing benefits:
    • Basic = Medical only
    • Basic plus = Dental, Vision and FSA
    • Premium = Medical, Vision, FSA, Transportation, Unexpected life events and 401K.
  • Having a good plan helps with recruiting.

Compensation 101

Before you begin, always work out your strategy e.g. low cash and high equity reward or high cash and low equity. Don’t shy away on spending if you find the perfect person.

There are 3 components:

  1. Cash
    • Easiest for both to value.
    • Cash bonuses have mixed review – they are not properly valued by employees if at 10-15% of their base salary. Best to give this as merit instead.
    • Studies have shown that behavior changes at 25%+ of base salary. Which is why it works so well in Sales and Financial Services industry.
  2. Benefits & Rewards
    • Small personal incentives like a restaurant / theater voucher or a letter to spouse are most powerful.
    • They help build the company culture and show that the employer cares. Yet are cheaper to implement then a 10K bonus.
  3. Equity
    • Common terms:
      Vesting 3-5 years
      Cliff 1 year
      Expiration 90 days after employee leaves
      Buy back Company to buy back the options
    • Equity split for non-founders:
      COO 2-5%
      Cxx 1-3%
      VP of Eng. 2-4%
      Other VPs 1-3%
      Directors 2-5%
      COO 0.75-1.5%
      Key Eng. Roles 0.25-1.5%

Taso Du Val, Co-Founder and CEO of TopTal

Taso Du Val, Co-Founder and CEO of TopTal

Taso Du Val, Co-Founder and CEO of TopTal

About Taso:

  • As an early and lead engineer at Fotolog (Acquired by Hi-Media for $100m), Slide (Acquired by Google for $224m), and his own companies, Taso brings unprecedented top management and engineering experience to TopTal.
  • While running a small consulting firm, he recognized that while many of his co-workers overseas were just as good as his friends and colleagues at Google, Facebook, and other companies with notable top engineering talent, it was simply impossible to find them.
  • TopTal was created as a solution to the sky-rocketing demand for top engineers in Silicon Valley, US, and Europe despite the shrinking local graduate rates of such engineers.
  • Website: http://toptal.com/

The presentation notes:

  • There are 4 types of labor outsourcing:
  1. Traditional outsourcing – using consulting firms.
  2. Democratized outsourcing – providers of a virtual marketplace for freelancers and freelance agencies to negotiate work contracts with businesses that hire independent professionals and agencies.
  3. Crowdsourcing - Crowdsourcing is the act of outsourcing tasks, traditionally performed by an employee or contractor, to an undefined, large group of people or community (a crowd), through an open call.
  4. Top sourcing – sourcing company full of expertise and knowledge to help businesses cut procurement costs.
    • Companies in this space include: toptal etc.

  • Managing remote labor:
    • Learn to manage your local staff well before managing remote staff.
    • Communication is VERY important.
    • Product is the most important thing. Period.
    • When your remote talent is better than your best developer, you know you’re doing it right.
    • Use Skype excessively (24/7).
    • If 2 days go by without communication, fire instantly.
    • Expose them to Silicon Valley (TechCrunch, Quora etc).
    • Use PivotalTracker or similar Project Management tools.
    • Daily Scrum (development) works very well.
  • A note on communication with foreign hires:
    • Proper English != Communication
    • Bad English != Bad Communication

Isnt this educational and inspirational! Great content from great founders that know what it takes to hire the best people. So this was part 2 of 3 and I will be posting links to full videos of the event later in the week – so come back to check this blog for more updates.

Happy hiring!

~ Ernest

Linked mentioned in this post

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Ernest W. Semerda

CTO & Co-Founder at Medlert Inc.
Medlert CTO/Co-Founder. Founder of kickass GTD & Pomodoro app GSDfaster iOS app. Follow me on Twitter: @ernestsemerda or Google+.