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

Attracting, Hiring and Retaining the Best People

So recently I was invited to a 3 evening course at StartupDigest University via Hacker Dojo on Attracting, Hiring, and Retaining the Best People. Today was day 1. More to come over the next 2 weeks. StartupDigest is the insider’s guide to the startup world and the evening was hosted by Gagan Biyani, Co-Founder of Udemy, where all the videos of the presentations will be hosted later on.

Chris McCann
Gagan Biyani, Co-Founder of Udemy

“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.

Immad Akhund, Co-Founder and CEO of HeyZap

Immad Akhund
Immad Akhund ~ Co-Founder and CEO of HeyZap

About Immad:

  • Immad Akhund is the CEO of HeyZap and an engineer.
  • Having studied Computer Science at Cambridge University and co-founded 3 successful start-ups.
  • He was previously a co-founder and the CTO of Clickpass.com (acquired by Yola.com).
  • Clickpass partnered with Plaxo, Scribd, Disqus and others to power their sign-on through OpenID.

The presentation notes:

  • Recruitment is a Marketing Exercise. You must market yourself and your company over and over so it gets into people’s head that you are a good company.
  • Ask yourself “Why should this hire give several years of their life to your vision?”. Remember that you aren’t the only making favors here.
  • Hire Generalists over Specialists.
  • Spend time on your jobs page to make it Marketable. It should lure talent in. See http://www.heyzap.com/jobs
  • Use all the available channels to get talent. Being: Internal, Online, Offline, Campus and New clever ways like running random competitions for others in the social space to re-tweet your job ads.
  • Give employees a hiring bonus $2-10K to show you care.
  • Good people have at least 5 friends that are like them. If you find an A-player tap into their social grid since there is a high chance their 5 close friends will also be A-players.
  • Add “We are hiring” to all your blog posts.
  • Online communities like HackerNews, Reddit, StackOverflow, GitHub et al are one of the best sources of A-players.
  • Organize “open house” like Startup Crawl to allow A-players to come and have an open chat with you.

Auren Hoffman, Founder and CEO of Rapleaf

Auren Hoffman
Auren Hoffman ~ Auren Hoffman, Founder and CEO of Rapleaf

About Auren:

  • Auren Hoffman is the CEO of Rapleaf and an angel investor.
  • Rapleaf helps B2C companies give their consumers a better experience by providing automated search services for each consumer.
  • Auren is also a non-employee cofounder of BrightRoll and a co-founder of AdRocket.
  • From 2003-2006, Auren served as Chairman of Stonebrick Group and Chairman of the Connector Group (Silicon Valley 100).
  • Previously, he founded and sold three Internet companies before age 30: BridgePath (sold in 2002), Kyber Systems (sold in 1997), and GetRelevant (sold in 2002).
  • He writes a blog called Summation ~ http://blog.summation.net/

The presentation notes:

  • 3 ways to find an A-player:
    1. Having worked with them,
    2. Knowing someone who vouches for them and
    3. Reflective interview process.
  • Resumes are bad since they are nothing more than marketing and act as a selling document.
  • As the interviewee, you should always show up on time. Be respectful of the candidates time too.
  • Once you get comfortable about their specific skill there is no need to further drill it. Move onto other questions.
  • Get the candidate to teach you something. If you see they have a specific interest / hobby like chess, ask them to teach it to you (crash course) in the interview. Few people can “simply” explain complex concepts. Yet being able to explain a complex concept in simple understandable terms by breaking it down and even drawing it on the board is an important quality of an A-player. Every complex concept can be explained easily by an A-player.
  • Ask insightful and hard questions which are interesting for the candidate. Ask about:
    • Their thesis,
    • Current events like WikiLeaks and the ethical dilemmas created,
    • Drill into something they stipulated they are good at and see if their depth of knowledge reflects it,
    • Ask curious questions like: “How do you think LinkedIn generates the n-th degree contact/s?” Even if you don’t have the answer observe how they tackle the problem.
  • Don’t ask typical questions most interviewees ask. Come up with something clever that is specific to the candidate and see the fire it ignites in their desire to get to the answer. If you get a call or email after the interview with the answer then this is a great indication of the desire and fire that burns in A-players.
  • Don’t talk more than 25% of the interview. You want them to do the talking since you need to get the answers to your single question – “is this an A-player”.
  • Try to determine how Smart the person is by accessing:
    • Are they curious?
    • Do they ask the right questions?
    • Do they engage in further deeper discussions?
    • How well do they take feedback?
    • Are they unsatisfied with mediocre answers?
  • You can even get the candidate to do a presentation on their topic of choice and see how they can explain and simplify it enough so it’s crystal clear and educational. Make sure the topic is hard so you can see their thought processes. Then ask yourself the questions above whether this candidate is smart.
  • Overall, you need to determine whether you would enjoy working with this person. At the beginning stages of your company you are the company culture and bringing in a new employee may change or enhance it.
  • You get to choose the people at your company. Therefore choose wisely.
  • Choose 3 key criteria you want in the people you hire and stick to them.
    • Rapleaf has the following:

    • A. Scary smart
    • B. Gets things done
    • C. Nice & friendly
    • Notice how there is no technical skills listed. Remember, top 3 only since in a Venn diagram too many circles creates too many overlaps which are too small. You want a nice chunky even spread.
  • Finding a Co-founder is always hard. So when you think you found one do something together to determine “compatibility” – something like a blog post together or running an event. This will help you see whether this person is trustworthy, follows up with their word and has passion for their work. The try before you buy approach. But always remember, that no matter what, even the 1st employee should be called a “co-founder”, looked after with good equity and be treated as such to help your vision come to life and ultimately success.

Isnt this educational and inspirational! Great content from great founders that know what it takes to hire the best people.
So this was part 1 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