Startups pay record salaries to all talent amid funding boom

The hiring boom and high salaries are closely linked to the funding frenzy and are more a sign of the future promise these companies hold, rather than their present financial performance. India has seen 14 unicorns- startups valued at a billion dollars or more- in five months of 2021, compared to 11 in all of 2020.

Online education, fintech, software as a service, ecommerce and technology-led startups are leading the hiring brigade. Other startups such as logistics firms and consumer brands are hiring as well, but despite better economics and significantly higher revenue, are not paying through the nose for senior level hires.

Steadily growing online brands with Rs 400 crore annual revenue are paying Rs 50-60 lakhs for a function leader, while new age firms which are growing 100 percent month-on-month but have negligible revenue are paying crores for function leaders.

"Non-tech non-product salaries are also catching up today. We are seeing significant hikes while hiring senior people for brand, marketing, growth, acquisitions. It is pure demand and supply at play, there are very few people who've really driven 100x journeys in the Indian startup ecosystem,” said Mihir Gupta, co-founder and CEO of Lightspeed-backed Teachmint, which provides a software platform for offline classes to go online.

Some startup employees are now measuring their salaries in dollars and benchmarking it against Silicon Valley salaries, where they could have potentially worked. "Indian startups are raising money at par with global startups, building products of global standards and competing for global markets. It makes natural sense to compensate talent as well as per global benchmarks to the extent it is feasible,” Gupta said.

Startup founders know from their experience as well as that of their peers and seniors that key hires have moved the needle for successful companies. Early to growth stage firms also prioritise speed above all else, and pay a worthy candidate handsomely, although if they were to search for a month more, they would find someone for the same role who would take half this person’s salary, founders say.

“When money is available and speed matters, you pay up and hire the best person. You may find a great person at a lower cost two months later, but what about the growth compromised for those months? Or what if your competition scoops up better people and blazes forward?,” said the founder of an early stage firm, requesting anonymity.

Jitendra Gupta, founder and CEO of neobank Jupiter says that salaries across functions, even for younger employees, have risen at least 25 percent in the last two years. A junior sales executive with 3-4 years of experience used to earn Rs 18-20 lakh annually two years ago. This has now gone up to Rs 30 lakh per annum.

“Many unicorns are not sensitive to the cost. A lot of candidates we have made offers to already had a couple of offers. The hiring cost has gone up for any skill set,” Gupta said.

Full stack developers as young as 25-26 years old are earning close to Rs 1 crore, some much more. The pay hikes that coders are getting is also causing an internal rift at some startups, where experienced executives in functions like finance, sales or supply chain feel shortchanged, earning less despite having worked for many more years.

Founders are having to explain to these executives that their role is different, and that technology teams will always be paid more because it is a core function, and one where talent is the hardest to find. Further, technology can be the backbone of an organisation and help increase the company’s gross margins later on. Technology inherently demands an upfront investment- on software and people, on which the returns are manifold.

Even if executives in offline heavy functions like supply chain or finance were to demand the same salary as a star engineer, it may not make sense because the financial returns these functions provide could be small compared to what superior technology can provide, founders say.

To ensure harmony at startups and not cause a cultural rift, founders and human resources leaders are correcting salaries across the organisation, so that one team isn’t exorbitantly paid while another languishes with measly hikes. Salary Differences will still exist but they will be more sensible.

Giving generous hikes to incoming candidates also poses a risk of poor culture, where employees feel jumping jobs is the only way to secure a big pay hike and that internal pay hikes won't be commensurate.

"If the remaining 100 employees make less money compared to the last incremental hire, it will create a lot of dissatisfaction for those who have been loyal but are at lower salaries. This kind of salary correction should happen in a way that there is no parity problem,” said TN Hari, human resources head at online grocer BigBasket

“You can't have a situation where people who switch company to company, the job hoppers get high salaries while people who are competent and loyal are at lower salaries. So, startups have to do this in a very thoughtful manner,” he added.

A few founders and investors worry about the long-term impact of these salary hikes. Many of these executives are being paid many times their salary from a few years ago, for doing largely the same work they did 2-3 years ago.

All these salaries are paid under best case scenarios that all these companies become multi-billion dollar firms. But if that does not happen, it is unclear how these salaries will look then, and whether they will be sustainable, more so when the funding environment changes. But most people say they can't afford to think that far ahead, when if they don't hire certain people who come at a certain price, their companies’ future may be bleak.

"Honestly, capital is not the biggest moat anymore. People are. So you have to invest in this moat because these people will take you to your company's next milestone. And that's all that matters at that point,” Teachmint’s Gupta says.