

Ask YC: Salary vs. Hourly for the Startup - iamdave

I was talking with a friend earlier today who works in IT, and we got on the topic of Salaried pay versus Hourly.  It was a good conversation given the scope of his employment, constantly working extra hours (overtime as he's on salaried pay) which lead me to wonder:<p>How would a startup work with payment as funding and financing are always questions of concern?<p>Discuss.
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dkokelley
I think it depends on where the startup is in its development. If there is no
income, and the startup is very young, there should be no employees. The
founders should all take a salary, even if it's just a token salary of their
living expenses, for tax purposes.

In my opinion, anyone working on building the primary product of a company
(the hackers) should be a founder, or have a significant equity share in the
company, especially if the company has yet to earn a profit (assumed if the
primary product isn't build yet).

If the startup is at the point where they are earning a steady income, and
needs to hire additional people, then it depends on the role needed.
Secretaries, customer support, and other administrative work should be hourly
(or even better, contracted out). Sales should be commission (to the extent
permitted by law). Additional hackers should be on salary with stock options
and the expectation to do a lot of work beyond the typical 40 hour work week.

I'm interested in hearing what others think about my suggestions. Please let
me know what's worked/worked better for you.

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iamelgringo
People do what you reward them for doing.

If you pay them per hour, they will work a lot of hours.

If give them decent profit-sharing, they will work on making your company
profitable.

If you pay them per widget made, they will make a lot of widgets.

If you give them an equity stake in the company, they will be invested in
being able to cash out that equity.

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delackner
I have been at startups and established small firms with every thinkable
permutation of pay, stock, and required hours. Frankly if you are at a point
where you are ready to hire people, a FAIR salary (not even thinking of future
profits or the potential value of stock options) is the only arrangement that
aligns your interests with that of your staff.

Expecting people to work long hours routinely is a great recipe for failure,
unless you are doing something totally uninspired and brainless to start with,
in which case having zombies do the work is sure to work just as well.

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aneesh
If someone needs to be paid extra (hourly) in order to stay one extra hour in
the evening, they're probably not an ideal startup employee.

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ardit33
Here is my two cents:

Salary, in USA, usually means an exempt worker, which is for those professions
(software engineering included), where you can't directly measure their
output. So, you pay somebody a fixed early salary, then the person can work 30
or 50 hour or whatever, that's something between you and the employee.

A non-exempt employee is sombody that the work can be measured directly (QA,
secretaries, call center help support people, factory workers), and they are
usually paid hourly, with overtime kicking after 40 hrs of work.

The only time you see a software engineer working hourly, is when they are
hired in a contract basis (i.e. work for a given amount of time, 3-6 months
etc.). Even this contract can't be longer that 18 months, as you will be
breaching labor laws, as this person should probably be considered as full
time, exempt employee.

Now,in a startup, if you hiring somebody full time (not contract work with
fixed amount of time), you are probably breaching labour laws. A graphic
designer working hourly is ok, a software engineer, no no.

In most startups I know, when the first employees are highered, they usually
are highered salary basis, so they can work as many hours it is needed.

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jasonlbaptiste
founders- salary for sure. I don't think you can really measure a founder's
contribution by the hours they put in. As Founders, its understood we're
putting in insane hours. If we were "charging" by the hour, most startups
would be broke.

One off work- For development maintenance, some design work,etc. definitely go
with hourly. Have your shit together when it comes to specs, design, what the
project entails. If things go overboard, you might be kicking yourself. It's
also a good way to see if that person might be worth joining the team, without
making a huge up front commitment.

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mwerty
Hourly pay makes sense for disposable employees.

You are likely asking for trouble when applying it in a startup.

A case study from Charlie Munger:

One of my favorite cases about the power of incentives is the Federal Express
case. The heart and soul of the integrity of the system is that all the
packages have to be shifted rapidly in o­ne central location each night. And
the system has no integrity if the whole shift can't be done fast. And Federal
Express had o­ne hell of a time getting the thing to work. And they tried
moral suasion, they tried everything in the world, and finally somebody got
the happy thought that they were paying the night shift by the hour, and that
maybe if they paid them by the shift, the system would work better. And lo and
behold, that solution worked .

~~~
foonamefoo
I find this interesting because I actually had a friend who worked the night
shift there one summer in college (around 4 years ago). He was paid hourly.

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fizz
A startup will need to hire strong talent and retain them during critical
periods to have a hope of success. The enticement needs to go beyond a simple
deal of annual or hourly agreement. Bonuses based on completion of goals and
other kinds of benefits are important. Shares in the company is even more
important. If you don't have the enticement, you can just quit tomorrow and
paid just as much somewhere else. The cost to the employee who quits is a tiny
amount of risk in transitioning to a new job. The cost to the startup can be
huge due to delays in hiring and ramping up new employees.

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brianr
For founders and employees, salary without question. Contractors are different
and usually paid on an hourly basis or given a retainer that's supposed to
correspond to some set number of hours. But if your core team wants to be paid
hourly, something is terribly wrong--they either should be given more equity
or simply don't have the right mindset.

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jk4930
When you can influence productivity via payment: Don't pay for time but for
units of work done. That motivates the employee and gives you a better
performance control.

But that's not true for supporting jobs (e.g. secretary) where it's up to your
cost accounting whether you pay for time flat (monthly) or by workload (hour).

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phaedrus
Wait, wait. What is the appropriate unit of work for programming?

Lines of Code? We've been down that road, and it doesn't work well. Especially
if you improve the project by deleting unneeded code - did you just do
negative work?

Features? Some features are wildly more work to implement than others.

Bug fixes? Besides not being a sufficient measure of work making new code,
making a bug fix the work metric penalizes conscientious programmers who find
and fix all their bugs very quickly before they check in, or if they report
them then they're wasting time writing about bugs that took less time to fix
than they did to write about.

I think in an ideal world programmers should get paid by work units, but I
don't think there's a way to measure it that doesn't create more overhead than
it is worth. In the end, people get paid by the hour not because it's be best
way, but because hours are easy to measure.

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jk4930
Think of employees as subcontractors. Their basic monthly salaries are your
costs of having them on standby to work on your assignments. Then you can
(more or less) calculate the value of a unit to your company / project and
that's what you pay for it. Roughly speaking. So "unit" won't translate into
"work unit" (like LoC and similar quantities) but into "subproject". And so
we're talking about capital budgeting. A good hacker can understand and apply
this creatively after some good books or courses (or the VC advisors provide
the knowledge), 'cause in the end it's just some basic concepts + formulae.

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samwise
If i was my startup, i would pay salary. You get so much more bang for your
buck out of your users. Startups work day and night, that would cost too much
at an hourly rate.

