Compensation for start ups: A leveling matrix that scales
A while ago (feels like 100 years, was actually only 8), I wrote a basic compensation guide for a founder I was helping out who was struggling to manage one-off requests for raises. I also handed it over to First Round who published it.
I’ve been meaning to expand it and update it for a while, so this is the start of doing that in pieces.
Today, I wanted to share a pretty basic tool but one that every start up searches for or creates at some point: a Leveling Matrix.
I’m going to tl;dr this post because I’m guessing some of you are well versed in levels. If you want a basic leveling framework for your start up that will last you til you are at least 1,000 employees, I’ve adapted one here. You should be able to copy it if you’re logged in to your Google account. I’ve adapted this framework through working with many companies over the last bunch of years; many smarter brains than mine are behind many of the words and ideas but feel free to blame me if you don’t like it. It is a good idea to read through it and change it for what you need at your company, but hopefully it’s an easy starting place for many of you.
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So first, what are Levels? Levels are one of the basic building blocks for a fair compensation practice. Essentially a “level” should denote how senior someone is: how much scope they have and how independently they manage it. Roughly speaking, people that are at the same level doing similar work should be paid the same. This does not mean that a senior marketer and a senior engineer are paid the same; it means that senior marketers at the same level should be paid very similar amounts if not the same.
When you start out building a start up, you generally have 3 levels: pretty junior, pretty senior and then executives. When you’re very small, you probably won’t even distinguish between “pretty senior” and “execs”. When you get to about 50 people (if not before), it becomes VERY helpful to not just have more than 3 levels, but to start to be rigorous about what it means to be a level 3 versus a level 4 or level 5. At this point, that rigor mostly exists in hiring until you implement a performance management system, but even in hiring, being loose about levels is where bias tends to creep in.
(Just fyi: 8 levels will feel like too many levels at 50 people and by 100 people you will be glad you have that many.)
In case you’ve never heard of levels before, roughly speaking, here’s how levels work:
You define a set number of levels in the company. Unless you have an exceptionally good reason, I would suggest that the whole company use the same number of levels. Sometimes a department, like engineering, will just not use the first two levels or most of the IC1s in a company will be in support or operations, but it is still helpful to have IC3 mean roughly the same thing across every department in the whole company.
You use those levels to build compensation bands (or points) for each level in each department. I won’t cover that process in this post, but that is the fundamental purpose of Levels. IC3s in marketing should be paid roughly the same amount.
When you are opening a new role to hire for, your first question is “what level is this role?” It is fine for the answer to be “either IC5 or IC6 depending on the candidate we find” but it should not be a bigger range than two levels.
Ultimately, your performance management system will also rest on these levels. The decision to promote someone is a decision to move them from an IC4 to an IC5 or from an M1 to M2 with commensurate changes in compensation and title.
One of the hardest things you have to work on and hone over time is to ensure that all your managers are working off the same definition of each level. If Marketing or Finance or Product is hiring everyone as a Director but their scope and level of independence does not match that of all the other Directors in the company, you are going to have big problems over time. It really screws with the morale of your top performers when there are people that are either over-leveled or over-titled. THAT is where a leveling matrix can be very helpful AND it is why you want to start being rigorous as early as possible. Just having a basic leveling matrix gives you something to discuss and debate with your managers as they hire or ask to promote people, and it gives you a “check” to ask questions about a certain hire or promotion.
So the leveling matrix that I’ve used now in a number of companies is linked here; you should be able to make a copy for yourself if you are logged in to your Google account. It is meant to serve as a generalized starting point for most companies. Before I edited and generalized it, many many hands have touched parts of this document so I cannot take credit for many parts of it, though I’m happy to take all the blame. As I mentioned above, this matrix scales well and can last to thousands of employees before you have to add more levels. I have used it now at over 10 companies, and it is loosely loosely based on what we started with at Facebook many many years ago (please assume this is nothing like Meta’s leveling system today).
Here are the design principles of this leveling matrix:
It has 8 main levels including VP and CXO.
The management track is parallel to the individual contributor track. This is very common practice now in tech companies, but it means that in order to become more senior and be paid more, you should not have to manage people. Why? You want managers who love managing people, not managers who are begrudgingly overseeing people in order to be paid more and have a more senior title. Trust me. Management starts parallel to IC3. I have never met a company that starts it earlier than that. I have met some that start it later.
Each level should correspond to a Title in addition to compensation bands. I’ve included examples on the second page. This is a good thing to take time and customize for your company: some people hate titles, some people love them, Google had multiple levels titled the same thing and so did Facebook, lots of people hate “senior” titles, etc, etc. I definitely don’t care about what you title each level but in terms of saving you pain, I would strongly encourage you to tie titles and levels together. Nothing is worse for morale than an IC4 using a VP title or whatever. One deliberate decision that it’s helpful to make, by the way, is “at what level can someone use the title ‘head of’?” “Head of” titles tend to creep in during recruiting and cause issues across the company — “why is that person ‘head of X’ and I’m not ‘head of Y’?” I typically tie “Head of” to the same level is director, so Level 6, but some companies allow it at Level 5.
On the third tab is the fleshed out version of each level. I really like having the “rule of thumb” version that is on tab 2 (credit to someone much much smarter than me for these), but it’s super important to give folks a deeper sense of what it means to be an IC2 or M2. The management additions for each level on the management track are at the bottom in row 7. A reminder that leveling guides are meant to be directional guidance about what it means to become more senior. It is intentionally brief, so is neither comprehensive, nor is it a checklist.
This matrix intentionally does NOT have a “years of experience” column next to each level. A lot of leveling matrixes do, and I just don’t believe in it. Having 15 years of experience doesn’t auto-qualify you to be a Director nor should having 5 years of experience auto-disqualify you. I think the most important question when hiring is “what are the expectations for this role?” and “do we believe this person can meet or exceed those expectations based on their past experience and potential?” Your recruiting process needs to be exceptional at vetting for that second question.
Final fun free advice from Molly’s bag of mistakes: when in doubt while hiring, it is far far (far far) better to under level people than over level them. In fact, I’d go so far as to say it’s better to lose the hire than over-level people. You can ALWAYS promote people; re-leveling someone to a lower level usually leads to them leaving the company. Yes I realize it’s tempting when someone is arguing for a higher salary to break your compensation model and just bring them in at a higher level but it is almost always a mistake. If you do it, just be rigorous about making sure they know that there are BIG expectations associated with their role. If they don’t meet them, you will end up needing to fire them.
Ok, I think that’s it. Please feel free to copy it and adapt it for your start up. Feel free to share it with anyone who needs it.
I hope it saves you and your friends time and mistakes. If you have any questions, feel free to email me at firstname.lastname@example.org.
Coming soon: a basic performance management system and process that ties compensation and performance together.
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Thank you for sharing, Molly! It's this kind of content that enables many ventures to have a shot at growing up. At gitpod.io we believe in the power of open source and aim to give back, so if there is something I can do in return (not that I could think of anything right now) please let me know.