Compensation is one of the most consequential decisions a growing company makes and one of the least systematically approached. Most founders at the 10–50 employee stage set salaries based on what the last person accepted, what a candidate asked for, or what feels affordable. None of those are compensation strategies — they’re ways to either overpay relative to market or lose the candidates you actually want.
What compensation benchmarking means
Benchmarking means comparing what you pay for a given role against what other companies pay for that same role in the same market. Companies typically position at the 25th percentile (below market, appropriate for early-stage companies offering significant equity upside), the 50th percentile (at market, the most common target), or the 75th percentile (above market, when competing for rare skills or in tight labor markets).
Where to get salary data
Levels.fyi — most accurate source for tech roles, particularly engineering and product. Crowdsourced, updated constantly, highly specific by role level. Free.
LinkedIn Salary — good for a broad range of roles, filters by location, experience, and industry. Free with a LinkedIn account.
Glassdoor — useful for understanding what candidates see when they research your company. Take with a grain of salt — self-reported data skews toward unhappy employees.
Offer letters and candidate conversations — every time a candidate shares what they were making or what they need, that’s live market data. Track it systematically.
How to build salary bands
A salary band is a range for a given role — a minimum, midpoint, and maximum. The midpoint should be your target market rate for a fully competent performer. The minimum is where you’d hire someone qualified but new to the role. The maximum is where a tenured exceptional performer tops out before a promotion is warranted.
A simple formula: set your midpoint to the 50th percentile of market data. Build the band 15–20% below and above the midpoint. If market rate for a role is $80,000, your band might be $64,000–$96,000. Someone new to the role starts in the lower third. A veteran performer sits in the upper third.
Pay transparency requirements you may not know about
As of 2025, California, Colorado, Washington, New York, Illinois, Massachusetts, and several other states require employers to include salary ranges in job postings. This applies to any posting visible to applicants in those states — which means most nationally posted roles. If you don’t have salary bands, you can’t post pay-transparent job listings. And beyond legal compliance, transparency eliminates a significant source of late-stage offer friction.
When to adjust pay
Three triggers should prompt a compensation review: annual merit cycle tied to performance reviews, a market adjustment when data shows you’ve fallen behind, and a promotion or role change. The one trigger that should not drive pay decisions: a retention conversation where an employee has another offer. Counter-offers work short-term and fail long-term — employees who accept counter-offers typically leave within 12 months anyway. Build the comp structure to prevent that conversation from happening in the first place.
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