I have been on a bit of a kick about employee incentive plans lately, and observed an interesting trend earlier this year while we were looking to hire a CFO here at TandemLaunch Technologies. Based on the limited sample of a few dozen finance executives who I interviewed, it appeared that such people in Montreal receive fairly large base salaries, but very little equity (in many cases none). Now, the bulk of the candidates had all worked in start-ups from 10 to at most 200 people so this surprised me a lot. I started my entrepreneurial career on the west coast and the model that I’m familiar with is a blend of low compensation and high equity stakes. A start-up might pay their junior level people at market because, well, they have to eat, but at the mid and senior levels salaries are usually substantially lower than market rate in big companies. Offsetting this are meaningful equity stakes. Out west, I would expect a CFO or comparable executive in a tech start-up to own 2% to 5% equity after having raised meaningful initial financing. And yet (from the sample of people that I talked to) that seems to be very different in Montreal where very few of the candidates had any material equity and almost all had substantially higher salaries than I was paying myself at TandemLaunch!
So why do I find this interesting? It’s interesting in that if this is truly a local phenomenon (and it seems to be) then it might just be an explanation for the results or behaviour of Quebec tech start-ups. When you look at the statistics, Quebec has somewhere around a third of the Canadian population but only 5% of the listings on the Toronto stock exchange (a fairly good measure of the IPO volume of Quebec compared to other provinces). Other indicators, such as the lower rate of exits by population indicate a similar trend: For example, Montreal and Vancouver tend to go head-to-head in the number of early exists except that Vancouver is almost a third of the size of Montreal. While the entrepreneurial ecosystem in Montreal is as strong as it ever was, the city is clearly not seeing as much entrepreneurial action as other parts of Canada.
There are lots of possible explanations for this but I suspect that executive incentives have much to do with it. If the senior executives of your company have no meaningful equity stake but a very high salary then why would they push the company to an exit or IPO? A CFO is probably one of the first positions to be eliminated in most acquisition anyhow, so there is even personal downside to such a move. Much more so than on the west coast, I have observed that status and security are paramount in the Quebecois psyche. So why risk all that when there is no upside?
Thinking about this more broadly, what role do incentives play in an organization? I firmly believe that at the end of the day, even the nicest people will act mostly out of self-interest. At least within the boundaries of legal, ethical and credible actions, people will attempt to maximize personal benefit. So the goal of any incentive model should be to ensure that the natural outcome of individual behaviour leads to the strategic goal of the company. If that’s not the case then you might still achieve the strategic result, but only if you constantly badger people to pursue avenues that are not in their own self-interest. It might work if you have strong enough leadership skills, but you’re really stacking the deck of cards against yourself.
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Interesting post Helge. I also read the employee incentive post.
Just curious are your incentives team or individual based or a combination of both?
I am also wondering about non-monetary incentives. As you alluded to in this posts incentives are closely aligned to employee motivation. Understanding what motivates individuals can help to structure a variety of incentives. Don’t get me wrong money is a powerful motivator for most. However, understanding individuals motivators helps to align incentives. My observations of GenY in particular is that they are often motivated equally by quality of life or purpose or money.
Non-monetary incentives can often provide as much or more motivation for employees. Something like a trip to the carribean for the entire team that spins out a newco in say February. Just a thought.
Thanks for the comment Ian. At TandemLaunch we use a mix of global and individual incentives. Every team member received an equity stake in every portfolio company in the TandemLaunch network. The magnitude of the award depends on impact of the employee (an internal measure that is a blend of role and performance of the individual). In addition, we have a number of adhoc inventive awards:
Patent Award ($1k for each patent filed for the inventor(s))
Venture Award ($500 for any contributor who shows exceptional effort in finding new projects)
Leadership Award ($300-$3000 for any contributor who shows exceptional leadership or ownership in their role).
These awards are given ad hoc or on a quarterly schedule (usually ~5 Leadership Awards and a few of the others per quarter). Last quarters big Leadership Award actually was a fully-paid cruise in the Caribean
.
You are absolutely correct that non-monetary rewards are also quite important. In my experience, the general flexibility of a startup environment will deliver some of those automatically (e.g. flexible schedule, flexible/individual seating arrangement, etc.). Others need some more dedicated effort. For example, we focus on impact-based promotions on a quartelry schedule to remove any form of glass-ceiling (as a result, we have a fair number of young high performers who have been promoted two or three times already in often less than a year at the company). We also offer various educational initiatives to help people build a career rather than just a job (e.g. an entrepreneurship program teaching participants how to build their own companies, an internship program with deep job shadowing & training, sponsored external courses for anybody who wants them, etc.). Finally, we work hard to maintain a high level of gender/background diversity at the office to give people an inspiring work environment (which, incidentally, also allows us to enjoy great ethnic food during our monthly cooking competitions
).
Sounds like a very well thought out and balanced set of incentives.
Be very interested to know more about your entrepreneurship program.
The entrepreneurship program is an internal educational initiative for our staff. Not to be confused with our actual business model of building ventures around inventions. The latter is what we do for a living, the former is what we do to train staff who are interested in leading their own companies or initiatives at some point (in our portfolio or beyond).
The program is a condensed 6 weeks set of lectures, practical training and “build your project” assignments that take participants through the steps of ideation, business model creation/customer development, project/product planning & development, GTM and finally financing/structuring/operations of a start-up. We use internal as well as external lecturers so it is similar in character to a web accelerator except that it is designed for our own staff (i.e. possible to do while working, hands-on but with support, TandemLaunch funded, etc.). We obviously don’t expect the next Facebook to come out of any of those initiatives. It’s really a training and professional development investment to teach some of the fundamental building blocks.