Good Hygiene (employment edition)

I’m spending a lot of time with offer letters these days.  In the very early stages of a company, in “prove” mode, these tend to be loosely written.  In particular, bonuses are unspecified, benefit aren’t mentioned, and key requirements are left unwritten.  It’s not ideal but perfectly understandable.

Fast-forward to “build mode”, though, and this won’t work anymore.  One primary concern is intellectual property, and in particular that created by developers or people who interact with a company’s customers, operations or sales process – that is, everyone.  Another is that people who are pretty intelligent become mysteriously confused once they quit about being paid bonuses for things that might have happened had they stayed.  The list goes on.

When times are good, this is a headache.  When times turn bad, it could be the end of your company.  WeWork is about to get tested for how their offer letters were written.  My membership lapsed over a year ago and I still have a membership card that works anywhere in the world, so I’m guessing their operations overall are pretty sloppy.  They are about to find out what happens when you terminate thousands of employees who have unclear and unrealistic expectations.

To execute on this appropriately, I implement a checklist for my companies that includes the following:

• Offer letters that specify that we will need to check citizenship (I’m in the middle of one of these right now – it’s amazing that in this environment that people don’t take this more seriously) and require you to sign a form NDA and assignment of inventions. Yes, the offer letter is in part sales document, which is appropriate.  It is also a document that you might need to rely upon someday.
• Bonus templates that very clearly specify conditions under which bonuses are paid, when they are paid (pro tip: don’t promise them in the first payroll of the next month if you pay biweekly) and exactly how they are calculated. If you want to force adherence to a particular policy (example – keep Salesforce updated), this is the place to do it.
• NDAs that are straightforward and to the point
• Assignments of Inventions that ask employees if they’ve brought anything with them and make clear that what they develop on your payroll belongs to you. This is going to feel like overkill and could save your company one day.  VC’s in particular want to see this before they write a 7 or 8 figure check
• Handbooks that lay out vacation and other benefits, but also are your opportunity to make your anti-discrimination, harassment and other policies crystal clear.  You won’t want to need them, but someday, you will.  Then you’ll want to stick to what they say.

 These are the basics.  As you move into scale mode, the compliance headaches will multiply.  Even more reason for good employment hygiene while you are in build mode.

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Re-trading the job offer

In many of the companies I work with, I sign candidate offer letters.  This isn’t always something a CFO does, but if possible, I prefer that I (or the CEO) am the final check on this particular business process.  One obvious reason is that I know what’s in the budget for a given position.  One less obvious one is someone with a touch of OCD will find errors – incorrect years, language from an old template that doesn’t belong in this particular letter – that someone else might not.

Another reason is that recently for somewhat junior positions, I am seeing a lot of negotiating by candidates who have received a verbal offer, accepted it, and now wants to re-trade.  It’s hard for a hiring manager to resist this.  With rare exceptions, I always do.

A candidate who has accepted verbally a salary of $100, but then when they get the letter and ask for $105, is setting him or herself up for failure.  He’s now signaled that either (a) everything is going to be a negotiation, (b) I can’t necessarily trust him to keep commitments or (c) my offer is the stalking horse for another one.  In my experience, most often it is (c), but (a) and (b) do also come into play.

I have sales managers tell me that this is just someone who is valuable in the market negotiating hard for themselves.  I don’t see it that way.  Maybe I am biased because credibility is my only product.  In my view, once the parties agree, a negotiation is done.  If someone really is a superstar, we’re going to find that out and likely make an adjustment upward anyway.  Or if they have variable comp, they’re going to crush their numbers anyway so the base salary doesn’t really matter.  Needless to say, it’s nearly impossible to adjust down.

Because I work with build stage companies, the hiring managers often are young and haven’t had the scars yet of candidates re-trading their job offers because what they really want is more money to stay where they are. My advice is to resist.

Payroll

I had a TechCXO partner meeting last week.  I always learn a lot at these and this session was no exception.

One of my colleagues who is a long-time CFO told us about a rule he had in his companies about people who see payroll data.  Which is: you cannot get another job here that doesn’t involve payroll.  Once you see how much everyone makes, you either stay in that role, or you have to leave the company.

This seemed extreme when I first heard it.  But the more I consider it, the more sense it makes.

In truth, many build stage companies trust this extremely confidential information in the hands of office managers who double as the people who “do” HR, which includes running payroll.  Few of these people have bad intentions.  Many are inexperienced.  And not many things blow up culture faster than exposing this information in the wrong way.   Once that toothpaste is out, you cannot put it back in the tube, and it is very difficult to clean up.

So, today I plan to have a reminder conversation with everyone who works with me and handles payroll data.  Not because I don’t trust them – mostly because once you’ve seen this information a thousand times, you can lose sight of how sensitive it really is and how important it is to keep it confidential.

On a related note – another build-stage company payroll risk I frequently see is the “single press of a button” problem.  Meaning, one person can both enter payroll and submit it without an approval step.  I understand why this is tempting in the early stages, and yet: it is a really terrible idea.  (The same goes for bill pay and especially wires, by the way).

Systems like TriNet and ADP actually make it hard to do an approval step in their PEO implementations, which I don’t really understand.  That said – always put in a second pair of eyes on this.  That pair of eyes too is probably bound by the same rule that my partner puts in place: once you see payroll, you can never go back.

Radical Acceptance

There is a concept in Buddhism called ‘radical acceptance’, where you accept something as it really is without struggling against it. For example: you realize that you are running late for a meeting and further that you can’t do anything about it. The next thing that usually happens is stress, which is a useful input but not particularly helpful. Better to accept that you are going to be late, not worry about something you can’t change, and then act appropriately.

I bring this up in a blog about build stage companies because recently I have seen a lot of struggle against things that would be better accepted. As a CFO, I get a fair amount of ‘can we make the numbers say X?’ I resist this every time because sometimes, accepting that the forecast isn’t that good is the first step in making change. The corollary to this, which I have also seen, is the investor who doesn’t quite believe the numbers and wants to triple-check them because they show less cash, sales or progress than expected. Sometimes the results say that performance isn’t good. Accept it, and then help the team figure out what to do about it.

Often I help manage the HR function. Another example of where startups rarely exhibit radical acceptance is in how they deal with underperforming employees or those who can’t keep up with the role they need to play as the company evolves. Procter and Gamble can survive this. Your build stage startup cannot. It hurts to realize that a member of your team is not working out. This is painful – but pain is a helpful stimulus. What is unhelpful is suffering, which is self-inflicted. Keeping an underperforming member of the team in a critical role – and in build stage companies, every role is critical – causes suffering for everyone.

My apologies to the true Buddhists out there as I’m sure I’ve butchered this teaching somewhat. I accept that.

Company holidays

Tomorrow is Thanksgiving, which it seems is one of the few days of the year that anyone not affiliated with public service, the NFL, or the Macy’s parade is not working.   Maybe I should include retail in there because of the unfortunate trend of stores open on this holiday.

A few notes on holidays in the build-stage company world.  This is especially relevant now as many of my clients are setting up their 2019 Holiday Calendars.

First, which ones?  Although I’m a CFO, I am in favor of giving employees off for the day after Thanksgiving.  This is a holiday about being together with family, which for many of us, means travel (or that people have traveled to spend time with us).  Because I’m in the Boston area, where you can count the number of nice-weather months on one hand, I also believe in either the day before or after July 4th, depending on how the calendar falls.  This is not a day when a lot of productive work gets done, and it’s early both in the month and the quarter.

The same goes for January 2nd, although not necessarily for December 31st, which often is the mad dash to close the quarter and year.  It can be a stressful and fun day to have everyone together driving to a common goal.  Better still if you’ve hit your numbers for the year and can give this day off as a bonus.

Then there are the holidays which are commonly considered optional: MLK Day, President’s Day and Veteran’s Day.  I’ve seen companies decide different things about them.  The markets are closed, as are schools, but I think many companies tend to be open and functioning fully on these days.  Good Friday is another example of this.

Again, I am in favor of having these as days off.  I think it’s important to recognize MLK, our democracy, and our men and women in uniform.  Easter is an important day for many people, and a time for family.

A related question relates to the Jewish holidays in the fall, or Passover.  When I was young, I always found it a little unfair that my holidays (especially Yom Kippur, which I dreaded for the fasting part anyway) required me to take vacation days, but Christians had off for Good Friday and Christmas.  I got over that though.  This is what float days are for, and besides, when I was young I didn’t need to take days off to take care of sick relatives or children.  Now I appreciate more how important that was.

Another reason I favor more holidays is that many people work on their days off, and/or don’t take all of their vacation.  Time off is very important.  I know that is not a common utterance from many CFOs.  But it’s true – if you don’t a recharge a battery, it not only runs down, it loses the ability to be recharged.

So, even highly motivated build-stage startup employees have to take time off.  And sometimes, you have to force it.  The holiday calendar is one way to do this – and by the way, set yourself apart from other startups competing for the same talent you are.

Have a Happy Thanksgiving.