Chapter 4. Employee Recruitment and Compensation

Chapter 4. Employee Recruitment and Compensation


The most important resource available to an emerging company is its human capital. Consequently, many managerial resources are dedicated to the recruitment of manpower. In startups that are constantly growing, the process of finding and recruiting employees is often performed under the pressures of tight schedules and uncertainty with respect to the company's future needs. In many cases, the company's organizational structure is still unclear and recruitment decisions are made on the basis of assumptions about manpower needs that are likely to change later on. Many managers assume that an excellent worker could have a role in the company even if his or her actual functions will be different from those designated for them at the time of recruitment.

The issue of compensating managers and employees is material, and becomes even more important in startups: How can good managers and employees, who are so essential to the startup's success, be compensated, while preserving the company's funds as much as possible? How can managers be encouraged to identify with the investors' objectives in both good and bad times? How can a comfortable family atmosphere be created, yet employees terminated when necessary? All of these are issues confronted by companies in all areas and managers in all companies. In startups, however, they are intensified. The timetables and the pressures, the scarcity of resources, and the uncertainty—all of these factors come together in startups and demand a management that will be excellent and unique, yet compensated in a manner appropriate for a company with no revenues, and certainly no profits.

This chapter reviews the main milestones in the recruitment process and provides a comprehensive overview of the components of compensation in high tech companies.

Employee Recruiting

Job Descriptions and Requirements

Many positions naturally demand certain requirements with respect to education, experience, and qualifications. For instance, it is customary for CFOs (Chief Financial Officers) to be qualified in accounting and finance and usually to have an MBA. However, in many cases, companies define prerequisites that are not essential to the nature of the position, but are rather the result of norms. In practice, many companies find that relevant experience, if it is accompanied by profound professional knowledge, may be preferable to this or to another degree in the relevant field. In any event, it is customary for companies to prepare job descriptions that are used to find the appropriate employees.

Extensive and significant experience is accumulated by working in the industry, not necessarily in the same position designated for the employee. A recruiter should always consider how important is the prospective employee's prior exposure to the particular industry in which the company operates, in comparison to his or her acquisition of work methods and managerial experience. For example, many consumer-oriented technology companies recruit senior employees from the institutional system of non-technology-based consumer products since, for many positions, the experience acquired by such employees in their previous jobs, as well as the work methods they learned and developed there over the years, could materially facilitate the establishment of an ordered managerial system—including processes such as marketing strategy and research—in the new organization. An example from April 2001 is the recruitment of the former CEO of the media company Universal Studios to manage Yahoo.

The personality and abilities of the candidate are naturally of material importance. If the candidate is being considered for a senior executive position, it is important to assess his or her decision-making and analytical abilities, creativity in problem-solving, and personality. A manager's leadership and interpersonal communication skills are priceless from the organization's point of view. Obviously, the composition of the necessary qualities changes from one position to another, and in many positions, leadership skills are less essential.

Headhunter services specialize in identifying many personal qualities in order to best match the employees to the right positions and companies. Such companies perform their initial screening mainly on the basis of prior relevant managerial experience (if the candidate is considered for an executive position), and the company interviews the employee later.

However, irrespective of the particular qualities required for each position, the employee's degree of motivation is essential for his or her performance. Motivation is composed of several elements, some of which depend on fixed factors, such as the amount of drive an employee has, and some depend on specific factors, such as the degree of interest the employee has in the position offered to him or her or in the company.

Finding and Screening Employees

There is a shortage of high-quality manpower in the world of high tech, and companies therefore compete vigorously for talented workers. Companies which specialize in recruitment have become a common phenomenon in recent decades in the United States. The high demand for highly skilled workers, managers in particular, resulted, in certain cases, in headhunters who recruit senior executives receiving not only commissions based on the annual salary of the recruited executives, but also receiving options based on the options awarded to the employee being recruited. The justification for this is economic—options constitute part of the compensation and provide a certain substitute for a salary.

In addition, many organizations offer monetary compensation to employees who introduce new employees to the company. Companies find that, in many cases, the mechanism by which the company's employees recruit personnel, besides being economically efficient, brings to the company more compatible employees in comparison to other alternatives (since the recruiting employees are more aware of the company's needs than any external body). In addition, the degree of loyalty of such recruited employees is higher, since they are usually brought to the company by their friends, who are the company's best advocates.

A traditional source of employees is classified ads published in newspapers. High tech classified ads have become a channel in which companies invest a fair portion of their advertising and recruitment budgets. In the case of private companies, a high correlation has been found between the number of positive mentions made of a company in the media (in such contexts as capital-raising, large contracts, and so forth) and the company's ability to recruit employees with better skills and at a lower cost, in comparison to other companies. In addition, companies which are backed by reputable investors and are advised by respected consultants find it easier to recruit employees. The reasons for this are clear—the process of employee screening is two-way, and it is important for employees to choose an organization that can provide them with stability and growth.

Once appropriate candidates are found, the company starts to interview them. Obviously, the interviewer's rank should correspond to the importance of the position. It should be kept in mind that employees are highly influenced by the level of management they perceive, as reflected in job interviews. In addition, clarifying in advance the possible promotion tracks is very valuable to potential employees. However, descriptions of possible promotion tracks are rarely incorporated into the employment contracts. Many companies require candidates (especially candidates lacking rich relevant experience) to undergo various compatibility tests, which may include psychological and graphological tests.