How to set compensation using commonsense principles

A practical framework for setting compensation at tech startups, built around two core principles: aligning salaries with market rates and maintaining internal consistency. The post argues against reactive raises (only when employees threaten to leave), percentage-based increases, and paying based on negotiation skill. Instead, it advocates for proactive calibration every six months, ranking employees by productivity to ensure consistent pay scales, and using sign-on bonuses to stay competitive without disrupting internal equity. Equity compensation is covered in depth, including how to value options at grant date rather than present value for fair cross-employee comparisons. Bonuses are generally discouraged for software engineers unless performance is directly quantifiable.