Many start-ups and scale-ups copy the remuneration policies of the established names on the labour market. That can and must change. According to PwC’s remuneration and transformation experts Raymond Welmers and Elieke Vastenhouw, companies within this segment have greater freedom to develop a ‘people value proposition’ that will give them an edge in the race for talent.
There is often a disconnect between how organisations present themselves and how they reward their current and future employees. The vast majority of companies and institutions promote cooperation and diversity and want to do business in a sustainable way due to ESG considerations. ‘But if we look at how they set about paying their staff, we generally see few signs of this’, says Raymond Welmers.
‘A majority of companies still take a traditional approach to remuneration, in the sense that they rely heavily on monetary rewards for material performance and also remain bound by the straitjacket of convention when choosing other remuneration instruments. The real story for current and future employees – how the organisation thinks it can attract (and retain) the right people to achieve its objectives – is only told in part or not at all.’
‘We still too often consider a remuneration policy in isolation, whereas the broad ‘people value proposition’ we are advocating must stem from what the organisation essentially stands for and where it wants to go’, continues Welmers. ‘Who are we, who do we want to be, how do we interact with each other, what are our common standards and values, how do we see the balance between our organisation and our environment, and what goals do we want to achieve together? This message must be understood by everyone who wants to be and could be of value to the organisation, now and in the future.’
‘A good proposition is a mechanism that guides who you attract, what you pay them and how’, Elieke Vastenhouw adds. ‘With it you should make clear who you want to appeal to and what personal and organisational developments and behaviours you want to encourage. This also means having the courage to be clear about who you are or want to be less attractive to. Don’t try to be everyone’s friend on the labour market, as that way you’ll lose your distinctiveness and recognisability.’
Companies in a start-up or scale-up phase hold a trump card in this particular area – one that, unfortunately, they still play far too infrequently. These businesses, the ‘future of our economy’, have more freedom than existing companies to align their overall remuneration package with the wishes of current and future talents. Their employment conditions policy is still a blank page. They can respond more quickly to changes in the preferences and wishes of their target groups and offer tailor-made solutions.
Moreover, growth companies are not inhibited by a history as an employer and have yet to earn a reputation on the labour market. As a result, they do not suffer from negative perceptions or excessive expectations. They do not appear, or hardly ever appear, on the benchmark lists.
On the other hand, a lack of funds can be a constraint, especially in the early years. And as start-ups mature and approach the scale-up phase, they need to make the transition to a professional organisational form with greater structure, delegated responsibilities and everything that goes with this, such as a job classification system, job descriptions, assessment cycles, a works council and HR staff. During such complex transitions companies sometimes lose focus and make suboptimal decisions. Or they resort to copycat behaviour, as they have to prioritise other things.
Welmers: ‘Timing is therefore important. You should already be thinking about the most appropriate remuneration proposition and the target groups you want to reach with it before your organisation’s development makes this more difficult – and sometimes even impossible. But this type of company has an advantage in this respect too. Every start-up owner has his or her own story that he or she cherishes and expresses, and that is part of his or her DNA.’
On the supply side of the talent market, we see that young talents from home and abroad are giving preference to the dynamics and promise of a young and innovative company. Fewer and fewer newcomers are opting for the apparent security of a reputable employer. And more and more people who have done so are reaching a point in their careers where they are starting to value such things more.
PwC’s global Workforce Preferences Study 2022 reveals that the employer’s image is no longer the leading factor in young people’s choices. They mention ‘purpose’ most often as the main selection criterion – the credibility of the social and climate goals that the organisation sets itself and how it wants to achieve them. Intangible aspects such as working atmosphere, work-life balance and the development opportunities offered also outweigh the size of the pay packet in the eyes of young talents.
Of course, this all begs the question: how do you design a ‘people value proposition’ that translates the promise and goals of your start-up or scale-up in a way that helps you retain current talent for longer and gives you an edge when it comes to attracting external talent?
Welmers: ‘First you have to map out the organisation’s narrative in an honest and critical way. In doing so, ask questions such as: do we value the success of our company – and our share in it – above all else, or do we attach more value to the happiness and future security of the people who want to work for us? Or do we consider the latter a prerequisite for the former? How do we view our social responsibility and how do we fulfil it?’
Vastenhouw: ‘Keep things manageable and guard against too much complexity. Choose three areas in which you want to excel and which your internal and external target groups see as distinctive. Think outside the box. A promise of growth is all very well, but in today’s labour market working atmosphere and working conditions are just as important. Map out the competences you need now and in the future and how you want to develop them together.’
PwC’s remuneration and transformation experts know from experience that many of the distinctive aspects that people are drawn to lie outside the area of financial rewards. ‘Don’t just think about fixed or flexible remuneration, but also offer extras.’
Welmers and Vastenhouw cite the example of a now mature booking platform that has successfully made the choice of location a fixed element of the remuneration package. ‘To attract more domestic and foreign product developers, the company is opening branches in AAA locations in cosmopolitan cities with a strong youth culture, such as Amsterdam and Berlin. This is appealing to many young international talents in particular. The chance that after five or six years they will be in a different phase of their life and will find this location less attractive is taken into account. In that way there is also a natural turnover.’
Another consideration is setting up a stock option programme as part of your overall proposition. Especially for companies that have little money now, but whose future value development is promising, this is and remains a good instrument – all the more so because a bill has been drawn up to address potential liquidity problems when exercising stock options.
Currently, employee stock options are taxed at the time they are exercised. Under the newly proposed optional regime, taxation may be shifted to the moment when the shares obtained upon exercising the stock options become ‘marketable’ as they are not (or are no longer) subject to restrictions on sale, thus allowing the tax liability to be met in this way.
Welmers: ‘For companies in development, this is a good retention tool and an excellent instrument for attracting people with special skills or leadership qualities who would otherwise be too expensive. But a good narrative remains a prerequisite, of course.’
Vastenhouw insists that forms of long-term incentive can only be used successfully if they form part of a broad proposition to add value to the lives and careers of the people you are keen to and need to have around you to succeed. ‘The labour market is changing on all fronts. Market-based remuneration has become passé. Selection based on vocational training hardly makes sense anymore and performance benchmarking is becoming increasingly unreliable. Lists of favourite employers can be ditched. To be successful in today’s talent market, you have to be able to articulate your own story well and showcase what you have to offer in a way that appeals to and attracts the people who are right for your organisation.’