Compensation Plan

GATE: Confirm context before designing the plan.

Phase 2: Build Structure

Design the compensation framework.

Pay Philosophy

## Compensation Philosophy

**Our approach:** [Choose one]
- Lead the market (pay above average to attract top talent)
- Match the market (pay competitively to retain good people)
- Lag the market (pay below average, compensate with equity/flexibility/mission)

**Pay transparency:** [Open / Banded / Confidential]
**Review frequency:** [Annual / Biannual]
**Adjustment basis:** [Performance / Market / Cost of living / Combination]

Salary Band Template

## Salary Bands: [Role]

| Level | Title | Band Low | Band Mid | Band High | Rationale |
|-------|-------|----------|----------|-----------|-----------|
| 1 | [Junior/Entry] | $[X] | $[X] | $[X] | [Market data source] |
| 2 | [Mid/Standard] | $[X] | $[X] | $[X] | [Market data source] |
| 3 | [Senior/Lead] | $[X] | $[X] | $[X] | [Market data source] |

**Band placement criteria:**
- Band Low (25th percentile): New to role, developing skills
- Band Mid (50th percentile): Fully competent, meeting expectations
- Band High (75th percentile): Exceeding expectations, hard to replace

Contractor Rate Framework

## Contractor Rates: [Role]

| Experience | Hourly Rate | Project Rate Equivalent | Retainer Rate |
|-----------|------------|----------------------|---------------|
| Junior | $[X]-$[X]/hr | $[X] per project | $[X]/month |
| Mid | $[X]-$[X]/hr | $[X] per project | $[X]/month |
| Senior | $[X]-$[X]/hr | $[X] per project | $[X]/month |

**Note:** Contractor rates should be 25-40% higher than employee equivalent to account for no benefits, self-employment taxes, and variable work.

Bonus Structure (if applicable)

## Bonus Framework

| Type | Eligibility | Target | Metrics | Frequency |
|------|------------|--------|---------|-----------|
| Performance bonus | All team members | [X]% of base | [Individual performance rating] | Annual |
| Revenue share | [Roles] | [X]% of revenue above $[target] | [Revenue metrics] | Quarterly |
| Project bonus | Project-based roles | $[X] per project | [On-time delivery + quality] | Per project |
| Spot bonus | Any team member | $[X]-$[X] | Manager discretion for exceptional work | As earned |

GATE: Present compensation structure for review.

Phase 3: Market Benchmarking

Validate the plan against market data.

Benchmarking Sources

For solopreneurs and small businesses:

• Glassdoor, Levels.fyi, Payscale (free salary data)
• LinkedIn Salary Insights
• Industry-specific salary surveys
• Job postings for similar roles (check listed ranges)
• Peer network conversations

Benchmarking Template

## Market Comparison: [Role]

| Source | Low | Median | High | Our Band | Position |
|--------|-----|--------|------|----------|----------|
| [Source 1] | $[X] | $[X] | $[X] | $[X]-$[X] | Above / At / Below |
| [Source 2] | $[X] | $[X] | $[X] | — | — |
| [Source 3] | $[X] | $[X] | $[X] | — | — |

**Assessment:** Our compensation is [above/at/below] market for this role.
**Adjustment needed:** [Yes — increase by X% / No — competitive as-is]

Total Compensation View

Do not compare base salary alone. Show the full picture:

## Total Compensation: [Role]

| Component | Annual Value |
|-----------|-------------|
| Base salary/rate | $[X] |
| Bonus (target) | $[X] |
| Benefits value | $[X] |
| Equity/profit sharing | $[X] |
| Perks (learning budget, equipment, etc.) | $[X] |
| **Total compensation** | **$[X]** |

Phase 4: Maintain

Keep compensation competitive and fair over time.

Annual Review Process

## Compensation Review Cycle

1. **Month 1:** Collect market data and update benchmarks
2. **Month 2:** Review individual performance ratings
3. **Month 3:** Propose adjustments based on performance + market
4. **Month 4:** Communicate changes and update records

Pay Equity Check

Annually review for unintended disparities:

• Are people in the same role/level paid consistently?
• Are there gaps correlated with gender, race, or tenure?
• Are contractors being paid fairly relative to employees?

Compensation Communication

When communicating pay decisions:

• Explain the philosophy ("We aim to pay at the 60th percentile for your role")
• Show how their pay fits within the band
• Connect raises to specific performance or market changes
• Be transparent about what drives pay decisions

Anti-Patterns

• No structure — just negotiation — without bands, the best negotiators get paid the most, not the best performers.
• Ignoring the market — paying 30% below market and wondering why you cannot hire or retain talent.
• All base, no variable — variable pay (bonuses, profit sharing) aligns incentives. All-fixed pay does not.
• Secret compensation — opacity breeds distrust. At minimum, share the band structure even if not individual salaries.
• Comparing contractor and employee rates directly — contractors cost more per hour but less in total (no benefits, taxes, overhead).

Recovery

• User cannot afford market rates: Compensate with flexibility (remote, hours), equity, profit sharing, or accelerated growth opportunities. Be transparent about the trade-off.
• Current pay is below market and team does not know: Plan a correction over 2-3 review cycles. Immediate jumps are ideal but may not be feasible.
• User has no idea what market rate is: Use 3+ free salary data sources and average them. Imperfect data beats no data.
• Team member finds out they are paid less than a peer: Address it immediately. Either justify the difference (performance, experience) or correct it.
• User only has contractors: Build a rate framework instead of salary bands. Same principles apply — consistency, market benchmarking, and transparent criteria.