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:

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:

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

Major roads in Silicon Valley

We flew down the twisty mountain road in a metallic gray VW Jetta. The wheels screeching tightly to the apex as I took the corner holding the steering wheel at 9 & 3 o’clock. Yes I was taught to drive this way at a rally school back in Sydney (Australia). The Jetta was a hire car. The surroundings screamed past us as I demonstrated to my friend how to take the apex on sharp corners for a smoother tight turn. Then we noticed a group of bicycle riders heading straight toward us. Well this is odd, I said. What are they doing on our side of the road. Oh crap, “we” are on the wrong side of the road. I jabbed the steering wheel to the right to get the car back onto the “right” lane. As soon as we did this a car zoomed round the corner on the right side of the road. We avoided a collision. Missed by that much.

You may already know this but in America everyone drives on the “right” side of the road. In Australia it is the left side. Today about 66.1% of the world’s people live in right-hand traffic countries and 33.9% in left-hand traffic countries. Being Australian I fell into the 33.9%. However it was time to adjust to the 66.1% and learn to drive on the right side of the road. In the beginning it takes some getting to used to. I found that having a non-Australia passenger in the car helped. Every time I would drift to the left (wrong side of the road) I would be instantly slapped back into gear avoiding another collision.

Unfortunately in the story above I was with another Australian and thus for us being on the left hand side felt comfortable so no internal alarms were set off until we noticed strange traffic patterns. I love telling that story because we spent so much time on the wrong side of the road feeling all comfortable until a shock later and we learnt one valuable lesson.

Roads are wide and big

One of the 1st things you will notice in Silicon Valley and well America in general, are that the roads are massive. Kramer (from Seinfeld) wasn’t exaggerating when he adopted a piece of the American freeway and showed us how wide the lanes are. They are huge here. You can practically dance around in your car on one. Not only that, most freeways have 4-5 lanes each way. That in comparison to Sydney (Australia) where the Sydney Orbital (freeway that takes traffic around Sydney) is 2 lanes each way – that explains the traffic issues!

Major roads in the valley

Major roads in Silicon Valley - from left: 280, El Camino & 101
Major roads in Silicon Valley - from left in green: 280, El Camino & 101

There are 3 major roads you can travel up and down the valley. They are, starting from the left (see map above in green):

a.       280Interstate 280 (I-280) is a 57 mile (92 km) long north–south Interstate Highway in the San Francisco Bay Area of Northern California. It connects San Jose and San Francisco, running along just to the west of the cities of San Francisco Peninsula for most of its route. This is what I call the sceanic route and you get to see the fog roll into the valley over the mountains – looks scary & beautiful when it’s happening (see pic below).

b.       El Camino RealEl Camino Real (Spanish for The Royal Road, also known as The King’s Highway) runs between the 280 and 101 through all the major cities in the valley. It is the road to take if you intend to do some shopping / food hopping during your drive.

c.      101U.S. Route 101 (US 101) is one of the last remaining and longest U.S. Routes still active in the state, and the longest highway of any kind in California. From San Jose to San Francisco, Highway 101 is known as the Bayshore Freeway as it passes through Palo Alto and the other major communities along the San Francisco Peninsula.

When going to San Francisco for dinner or to party I like to take the 101 if I want to get there quicker or the 280 if I’m in the mood for a scenic drive. On the 280 you will get to see a lot of eagles (American National Emblem) and that famous fog San Francisco is so famous for. The fog starts rolling in around 5-6ish in the afternoon as demonstrated in the pic below.

The fog rolling in over the mountains towards 280
The fog rolling in over the mountains towards 280

American’s drive fast

Yes it’s true. American’s drive fast on both 280 & 101. I have a heavy foot but still find myself trying to keep up to the average traffic speed of 80 miles (128 km) per hour. In America as long as you are not driving dangerously a cop wont bug you. That sort of explains the mutual traffic flow at high speeds – mutual agreement. I love it.

So you have 3 roads to choose from when heading up and down the valley. This is great and has the power to beat boredom by allowing you to alternate your routes and keep the drive different. Now that you know your roads, here’s to safe and happy driving!