In this episode of FNDN Series, we delve into startup compensation strategies with guest Jessica Zwaan, a seasoned COO and author of 'Built for People.' We examine how applying product management principles can revolutionise HR operations. Jesse shares insights from practical experiences, emphasising the importance of a market-informed approach to compensation and the dangers of freezing compensation in times of financial strain. We discuss ways to build compensation models that foster trust and engagement among employees while maintaining flexibility for growth. Key topics include performance-based pay, building compensation frameworks in dynamic environments, and the relevance of transparency. This episode offers invaluable lessons for People leaders and startup founders looking to navigate the complexities of compensating their teams effectively.

You talk about compensation as a pricing strategy rather than just a benchmarking exercise. What do you mean by that?

Compensation is often treated as a passive, market-following exercise—companies pull salary data, match the market, and move on. But in reality, pay is a pricing decision that should align with a company’s goals, talent strategy, and long-term sustainability. Instead of blindly copying market rates, startups should think about what they’re trying to incentivise, who they want to attract, and how pay fits into their broader culture.

When you look at how product teams approach pricing, they don’t just copy competitors—they set prices based on customer value, differentiation, and business impact. Compensation should be approached the same way. If you're just reacting to market data, you're letting external forces dictate your pay strategy rather than designing something that serves your business.

‍

You’ve said that benchmarking should be market-informed, not market-led. What does that mean in practice?

A lot of companies take benchmarking data at face value—if the median salary for a role is $120K, they assume that’s what they should pay. But benchmarking should be a data point, not a decision-maker.

Instead of following percentiles rigidly, startups should use them as a reference to build structured, scalable salary bands. This means ensuring pay progression makes sense internally, not just compared to the market. If each role is benchmarked in isolation, you get erratic jumps in pay between levels—some too big (costly for the company), others too small (demotivating for employees). A better approach is to look at roles collectively and ensure compensation allows for logical career progression and internal mobility.

‍

What are the risks of freezing compensation, and why do you think it’s often a mistake?

‍

Pay freezes are often seen as a necessary cost-cutting measure, but they create more problems than they solve. First, they’re rarely absolute—exceptions always happen. A key employee will get a raise because they threaten to leave, or someone gets a promotion out of necessity. The moment this happens, you’ve created an unfair system where some employees get increases while others don’t, which damages trust.

Second, compensation is part of the fundamental agreement of employment—people expect the ability to progress financially. When you pause that, employees see it as a broken promise. If you absolutely must freeze comp, it should be a last resort, not a knee-jerk reaction. Instead, consider alternative solutions like strategic variable pay or performance-driven incentives that keep motivation high without overcommitting fixed costs.

‍

You implemented a variable pay model at Talentful—how did you make it work?

We recognised that market salaries had stagnated or even declined in some areas, but we still wanted to incentivise our team. Instead of a blanket pay increase, we introduced a structured variable compensation model tied to both company performance and individual contribution. It’s similar to a profit-sharing approach, where payouts are distributed based on clear, pre-set metrics.

The key to making this work was transparency and trust. People are naturally sceptical of bonus schemes because they’ve been burned before—either payouts never happen, or the criteria are unclear. We made sure to communicate exactly how the model worked, what people could expect, and when payments would happen. As a result, we saw 26% of our team get promoted in 2024, and we raised average salaries by over 10%—a mix of base and variable pay that was actually paid out, not just theoretical earnings.

‍

Many startups struggle with pay transparency. What’s your take on getting it right?

Transparency exists on a spectrum, and not every company should adopt the same approach. At Whereby, we had a fully transparent compensation model—everyone knew the salary framework, and job ads included pay ranges. At Talentful, we took a different approach because our salaries were closely tied to our pricing model. Instead, we focused on internal transparency—ensuring employees understood how their pay was structured, what progression looked like, and what criteria influenced their earnings.

A mistake many startups make is thinking transparency means publishing every salary. But good transparency is about consistency, clarity, and fairness. People should know how pay decisions are made, even if they don’t see every single number.

‍

If you had to give one piece of advice to Heads of People working on compensation in 2025, what would it be?

Don’t overcomplicate it. You don’t need a hyper-detailed 20-level framework or a full-time comp specialist at 200 people. Start with what actually solves problems for your business today. Focus on fair, structured salary bands, clear career progression, and compensation that reflects your strategy—not just market data.

Also, don’t be afraid to iterate. Compensation isn’t a one-and-done decision. The best startups treat it as an evolving system, adjusting as they scale, rather than locking themselves into rigid structures that don’t serve them long-term.

‍

Visit Jessica Zwaan’s Website 

Linkedin: https://www.linkedin.com/in/jessicamayzwaan/ 

Book: Built For People 

Jessica is the COO of Talentful: http://talentful.com/ 

More FNDN Episodes at Spotify