Performance Management at

Startups
As your company approaches 20+ employees, it will become clear that you can’t track performance feedback in a
spreadsheet. You can try! But this will get messy very quickly. So we’ve put together some guidelines to help you avoid
spreadsheet purgatory. The guidelines will address how to:

● Manage the communication process around feedback

● Choose a performance feedback tool that works for your company
● Deliver feedback (the good and the difficult)
● Use feedback to drive performance

Hopefully these guidelines and tips help you motivate and engage your employees. The earlier you think about a systematic
performance management process in the workplace, the better alignment you will have between employees, their career
goals and overall company objectives.

Like our What Ifs, this is a living document that we’ll edit and update as we learn and get feedback. We look forward to a
thoughtful and productive conversation about this topic. Don’t hesitate to contact Beth Scheer, Homebrew’s Head of
Talent, if we can help your startup think through these issues.

Huge thank you to Kim Malone Scott at Radical Candor for her input on this working document.

Performance Management
Giving and receiving performance feedback is a crucial part of career development. In startup culture, where things move
at a frenetic pace, it doesn’t make sense for anyone to wait a year to find out where they stand in terms of performance.
Employees need constant feedback so they can adjust their behavior and make improvements or modifications. If no
feedback is given by managers or peers for an entire year, too much time goes by without feedback and without alignment
on goals and how to measure success.

So what works?

● Setting goals and sharing them with your colleagues

● Getting, giving and encouraging impromptu feedback
● Recommended tools for implementing review processes

GOAL SETTING… THE NEW OKR

There are strong business reasons to set goals:

● Organizations that use formal goal setting exercises are 3.5X more likely to be in the top tier of financial performers
every year.
● Only 7% of employees report fully understanding their company’s business strategies and what’s expected of them to
 help achieve company goals.
● Making goals visible to everyone is a necessary condition for consensus and alignment in an organization.

(Reference: http://firstround.com/review/okrs-are-old-news-introducing-goal-science-thinking/)

GETTING FEEDBACK

Getting feedback from your team sets a strong example that you are self aware and working on improving. If you create a
culture of open and honest communication, employees will want to share their thoughts. Here are some tactics:

1. Open your door. Don’t just have an “open door policy.”

2. Remain constant and consistent in asking for feedback. It may not happen the first time.
3. Get to know your team as individuals. Eat meals and participate in non work related activities. This builds trust and
rapport.
4. Follow up with them regarding feedback they have given. Have you improved? How can you improve more?

(Reference: https://www.entrepreneur.com/article/232596)

1:1 MEETINGS - A GOOD PLACE TO GET FEEDBACK

For starters, managers should be having weekly 1:1s with their direct reports. This should take the form of a 30 minute
meeting to connect and review priorities, goals, concerns, or any roadblocks the employee may be experiencing. Also, the
1:1 is a good opportunity to solicit feedback from direct reports. However, it’s NOT the time to deliver feedback.

How should the 1:1 be structured?

● The direct report should come prepared with an agenda (sent in advance so the manager has time to prepare).
● Managers need to be focused (phones off/no distractions).

What should you get out of the 1:1s?

● Do you have alignment between employee and manager?

● Is there clarity around role expectations and performance?
● Is the employee engaged?
● Is the employee’s workload manageable?
● Is there anything going on that may be impacting his or her work?
● What can the manager be doing to support him or her?

This is a time for the employee to ask questions about the business that may need some explanation. Having the right
performance management tools will help you come prepared because you will be able to remember what items need follow
up.

GIVING FEEDBACK

Giving and encouraging feedback shows you are in tune with how people are performing. Feedback should be given in the
most transparent, direct way possible. No “suggestion” boxes where people can hide behind their thoughts. Give feedback
in person.
 1. Create a safe environment. The person receiving the feedback needs to feel comfortable and know it is coming
from a good place. This only happens when there is a solid pre-existing relationship of trust and proper context for
the feedback.
2. The positive feedback should be outweigh the negative. Don’t deliver this feedback at the same time because it
dilutes the praise and can make the criticism less clear.
3. Be specific and offer examples.
4. Don’t delay providing feedback.
5. Be firm and direct, but not mean spirited.
(References: https://www.entrepreneur.com/article/219437 and www.radicalcandor.com)

The best way to deliver feedback, both praise and criticism, is to do it right away and in person. Good feedback gets
measured at the other person’s ear, not at your mouth. So make sure you know how your direct report feels about what
you’ve said.

How should these conversations be structured?

● If you see somebody do something great or make a mistake tell them right away.
● This often means providing feedback in-between meetings. Make sure you have time between meetings, or just be
willing to be late to your next meeting.

Performance Management Tools

Performance Management Tools help companies align their resources, systems and employees with their strategic
objectives and priorities. In simpler terms, they offer a way to gather and calibrate feedback for employees and set and
track individual and company goals.

We looked at various performance management tools on the market and selected a few that are are a fit for early stage
companies. We encourage you to demo them and see what works best for you.

Zugata separates employee development from evaluation because learning and development are not a once a year thing.

● Standard continuous feedback product is free to all companies.

● Performance evaluation feature is a separate feature at a cost of $10/user.
● UI is very user friendly and the automation in the evaluation feature makes it very easy.
● Zugata does not have a goal setting feature.
● Pricing: http://www.zugata.com/pricing/

Reflektive is a performance management system for companies with 50-500 employees. Features include:

● Real-time feedback
● Performance Review Management
● Performance Check-ins
● Goal Management
● Pricing: https://www.reflektive.com/pricing/
 ○ “Perform” $5 per user per month.
○ “Align” $9 per user per month. Includes additional features.

Betterworks offers a goal tracking and performance management enterprise software tool. Best for companies with a
minimum of 30 employees. Features include:

● Goal Progress - ability to see departmental alignment and progress by org structure.
● Planning Tool - create, share and align on annual or multi-year plans.
● Conversations Tool - provide managers with the context of an employee’s goals for better feedback and coaching.
● Pricing (itemized by module):
○ Goals - $15 per user per month
○ Plans - $3 per user per month
○ Conversations - $5 per user per month

Lattice has developed a performance management tool focused on transparency and simplicity. Features include:

● Goals - takes goals out of a spreadsheet and puts them in a platform.

● Reviews - review cycles in 3 steps (create, run, report).
● Check-ins - become a better manager.
● Pricing: $10/user/month if monthly billing; $8/user/month if annual billing

Careerlark is a performance management system providing continuous feedback, positive recognition and high impact
reviews.

● Built for SMB market with companies 10-30 people in mind.

● Offers free support and self serve.
● Pricing: free until premium services launched.

How should you evaluate a performance management system?

http://firstround.com/review/betterment-tested-three-performance-management-systems-so-you-dont-have-to/

How Performance Impacts Compensation

Homebrew advises startups to adhere to a simple philosophy around compensation increases or raises. Unless an
employee’s job changes, his or her salary shouldn’t change. Raises should be given when there is a promotion or change in
scope of someone’s role.

If someone is coming from a larger company, they may expect an annual raise regardless of performance or promotion
(anywhere from 3-5%). Make sure you set expectations accordingly early on and be clear with employees that raises are
tied to promotions and/or changes in scope of role.

Are there exceptions?

Of course. If someone is taking a large cut in base and/or bonus when hired, salary probably needs to be revisited when the
company raises additional capital (typically at the A or B round). Make sure you do this for all employees who are under
market and be consistent using salary bands targeting the 50th percentile for base salary. *Please note these are
recommendations from the Homebrew team… not hard rules. Please refer to our Compensation at Startups document for more
detail.

BONUS PLANS

Employees in non-revenue generating roles (everyone but salespeople) will likely not have an individual or company
bonus as part of their compensation plan. Startups are usually cash constrained and employees are rewarded with equity,
which is a longer term incentive. Once a company becomes profitable, then it is time to set up a company wide bonus plan.

Why and when should you set up a formal bonus plan?

There are several reasons why companies implement bonus plans and many early stage companies put it off as long as
possible. Bonus plans require a lot of paperwork and maintenance. There is always the risk of employees getting overly
focused on the actual bonus rather than what is really important.

There is no magic employee number or stage in financing when companies decide that it is time to put in a bonus plan. It is
different for each company and ties back to its general philosophy around compensation. Companies may put a bonus plan
into effect to remain competitive in the market for recruiting purposes. For example, a company needs to make up for a
gap in base salary and a bonus plan can help close gap this with additional cash.

Bonuses are a great way to reward strong performers. A bonus plan is usually tied to a rating system and the strongest
performers expect the highest bonuses. Until a refresher grant system is in place, a bonus plan may be a way to incentivize
employees.

Bonus percentages are usually tied to level and weighted by individual performance and company performance. The
more senior the employee, the more heavily weighted the bonus is on company performance. For example:

● Individual Contributor: 90% employee performance, 10% company performance

● Manager Level: 85% employee performance, 15% company performance
● Director Level: 75% employee performance, 25% company performance
● VP/SVP: 50% employee performance, 50% company performance
● C-Level Executives: 100% company performance

Here’s what a rating system of 1-5 looks like.

● 1, does not meet expectations, 70% of bonus

● 2, meets some expectations, 85% of bonus
● 3, meets expectations, 100% of bonus
● 4, exceeds some expectations, 110% of bonus
● 5, exceeds all expectations, 120% of bonus

Bonuses are usually paid out at end of year after an annual review. However, since we recommend ongoing reviews and
continuous feedback, you can pay out bonuses at the time that works best for financing/budgeting. Some companies break
things up and pay 75% of the bonus in January and the other 25% in July. This is seen as a retention tactic in addition to a
budgeting strategy.

SPOT BONUS PLAN

Spot bonuses are usually cash bonuses given to an employee for recognition of outstanding work by an employee’s
manager. Spot bonuses can also be more personalized and non-monetary, such as a gift certificate to a spa or favorite
restaurant.

A spot bonus plan provides an off cycle bonus to reward performance when a job or team does exceptional work. An easy
way to implement a spot bonus plan is to give each department head a certain amount of money for the year that they can
use for spot bonuses.

PEER BONUS PLAN

Some companies have a peer bonus plan where someone can nominate a peer for a bonus for work well done rather than
having it come from a manager. Peer bonuses tend to be smaller in terms of cash amounts or can also be in the form of gift
certificates.

The best way to implement this type of a program is to have a maximum number of “nominations” per quarter for each
employee (2 is a good number). This can be done through a simple online form or email alias. An employee submits a name
with some context as to why they are recommending an employee to receive a spot bonus. The department head reviews
the recommendation. Some type of recognition at quarterly/monthly all hands meetings is recommended for approved
spot bonuses.

STOCK REFRESH

Additional equity grants (otherwise known as refresher grants) should be based on performance and not awarded until an
employee’s 2 year anniversary (assuming there is no change in title or performance). Seniority is a factor to consider. We
recommend refreshing employees at the Director level and above at the 2 year mark and below the Director level at the 3
year mark. The most important thing is to have a defined philosophy around compensation and equity upfront. Be
consistent and do not be afraid to enforce this policy.

How mature should the company be in order to start a stock refresh program?

Most companies that are getting to 4+ years in life cycle are doing them.

What about vesting? Does the schedule change?

The vesting schedule should remain the same as the original grant. Some companies will drop the one-year cliff.

What is the amount of a typical refresher grant?

Grants are most often given as a percentage of the employee’s new hire grant (approximately 20-25% of an employee’s
new hire grant).

Final thoughts…
The talent management market is a 5 billion dollar industry according to Forbes. This should come as no surprise
considering the 3 major challenges for growing companies are:

1. Retention, engagement, and culture

2. Building a global leadership pipeline
3. The need to revamp and improve employee learning

It's time to start thinking about implementing a performance management system when your company is ready to do
formal reviews and keeping track of all the data feels like an administrative burden. If you have an in-house HR person, he
or she will see a need for this tool given the amount of data to collect and process during review time.

Many companies take the approach of “We seem to have everything under control with a spreadsheet.” This may work for
a company of 20 people, but collecting and maintaining feedback and tracking goals is not an easy task as your company
grows. The process needs to be a live, collaborative process, not something that sits on a spreadsheet that one person
manages.

If you don’t have an internal HR person, whoever is running the review process will see the need for a more organized,
systematic approach. If the person in charge of this data were to hand off this process to someone else in the midst of a
review cycle, how seamless would the transition be? Without any type of performance management system, we all know
what the answer would be. If the data is organized and up to date, anyone can come in and take over the process. Your
people are your most valuable asset so make sure this information is well maintained. Today’s tools are easy to use and cost
effective. A successful performance review process will result in promotions, career movement, and identification for
areas of improvement. In order to track this information, the right systems need to be in place.

(Reference: http://www2.deloitte.com/na/en/pages/human-capital/articles/introduction-human-capital-trends.html)

Please feel free to reach out to Homebrew’s Head of talent beth@homebrew.co with any questions.

Updated 1.15.20
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