January 2024

2023-2024 HR & People Trends

Lightspeed's 2023-2024 HR & People Trends Report.
Reports & Benchmarks

About the Report

As companies approach planning, performance cycles, compensation, and budgeting, benchmarking data becomes critical to making informed decisions. In our 3rd annual People & HR Trends Report, we surveyed 183 startups to identify how organizations are approaching compensation, workforce location structure, and employee engagement.

*The data appearing in this report is anonymized.

Key Takeaways

1

Employee engagement is on the decline. Remote work might be contributing.

53% of startups saw a decrease in employee engagement, largely attributed to "inadequate communication from leadership." This issue was particularly pronounced in remote-first companies, where 72% reported a decline in engagement.

2
The vast majority of companies offer remote work.

96% of companies now provide some remote work flexibility, with more than half (52%) embracing a hybrid model, typically requiring three days in office per week. The predominant reason for this shift back to the office is to "address cultural challenges."

3
Companies with return-to-office mandates faced employee resistance.

74% of employees are reluctant or non-compliant with office return policies. Technical employees, including engineers, product managers, and designers, showed the greatest reluctance towards in-office work mandates.

4
Annual salary adjustments remain the same and are targeted toward technical talent.

End-of-year salary adjustments remained consistent with our 2022 findings, where the majority of companies are targeting a 4-5% budget for salary increases. 23% of companies plan to  allocate a larger portion of their budget to technical roles.

5
Attrition rates remain steady and include programs to manage out underperformers.

YoY attrition remained consistent at 16%. The primary contributors were "company-wide layoffs" and "non-regrettable" attrition, accounting for 65% of the total. In addition, 83% of companies implemented strategies to proactively transition out underperforming employees.

6
Hiring rates and budgets are expected to mirror 2023.

67% of companies intend to either maintain or boost their hiring rates in 2024, a considerable shift from the forecasted 2023 survey findings, where 41% of companies were preparing to cut back on their hiring. 58% of companies anticipate maintaining or increasing their HR & Recruiting budgets.

7
Equity is not valued equally by all employees.

The perceived value of equity grants differs significantly based on an employee’s seniority and job function. 71% of individual contributors, especially those in non-technical roles, regard equity grants as “neutral” to “not valuable,” compared with 96% of executives who find equity “valuable” to “highly valuable.”

8
Parental leave has become ubiquitous across all stages.

Startups of all stages are typically providing an average of 13 weeks of fully paid leave for birthing parents and 9 weeks for non-birthing parents. Some later-stage companies offer up to 20 weeks of paid leave for both birthing and non-birthing parents.

9

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Report Details

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Insights & Observations

2023 marked another difficult year for startups across HR and people initiatives. From decreasing employee engagement to remote work challenges, startup leaders struggled to balance supporting employees with the demands of building sustainable and efficient businesses. We surveyed 183 startups to identify how companies have re-designed their workforces, enacted in-office mandates, and the impact these changes have had on employee engagement and retention. 

One of our core findings was that in response to cultural challenges, companies have implemented in-office mandates that have been largely unsuccessful in driving employee behavior or improving employee engagement.

Employee Engagement Decline and the Remote Work Connection

Our survey revealed a concerning trend: a marked decrease in employee engagement, with over half (53%) of startups reporting a drop in levels. Many companies noted "insufficient communication from leadership" as a primary contributing factor, which is particularly pronounced in remote-first companies. In these organizations, an alarming 72% have observed a decline in engagement, underscoring the heightened challenges of maintaining effective communication in a predominantly remote environment.

Improving leadership communication is free and completely in the hands of the executive team. When employees lack a clear understanding of the company's long-term vision and how it’s currently performing, they may fill in the gaps incorrectly. A lack of communication is often interpreted as a sign of company instability. The most effective leadership teams excel in communicating the company's long-term goals and vision, while also transparently conveying the current state of the business.

Suggestions for Improved Communication:

  • Revamp All-Hands Meetings: Prioritize discussions on the company's mission, provide critical business updates, and celebrate team and individual achievements.
  • Empower Front-Line Managers: Ensure that managers at all levels are fully aligned with the company's mission, vision, values, and current health of the business.
  • Share Board Meeting Updates: Share select slides and feedback from recent board meetings. Keep employees informed about how investors view the business and market dynamics

Remote Work Flexibility: A Dominant Work Model

In response to evolving workplace dynamics, 96% of companies now offer some degree of remote work flexibility. The hybrid model, typically requiring three in-office days per week, has become especially popular, with over half of the organizations (52%) implementing this approach.

The primary driver behind this shift back to office is the need to "address cultural challenges," underscoring the difficulty of building a cohesive culture within a remote and hybrid workforce.

Consistent with our HR report findings from 2021 and 2022, remote and hybrid work has negatively impacted culture in some way for the majority of companies. The effects of a poor company culture are far-ranging, including decreased employee engagement, lower productivity, and higher attrition rates.

Suggestions for Improving Culture:

  • Clearly Define Work Expectations: Companies should clearly specify the days when teams are expected to be present in the office for in-person collaboration. Without clear schedules, employees may find themselves in virtual meetings with colleagues who are working remotely, diminishing the intended benefits of in-office workdays.
  • Invest in Peer-to-Peer Connections: Proactively invest in programming that builds peer relationships. This might include budgets for team offsites, buddy programs, company social events, etc. Building a team dynamic requires consistent effort and investment, these cross-functional relationships rarely happen organically. 
  • Update Hiring Criteria: Adapt your hiring strategy to ensure that future candidates not only match the required skillset but also align with the preferred structure of your evolving workforce.

Return-to-Office Challenges and Employee Resistance

As remote work becomes more prevalent, companies enforcing a return-to-office policy are encountering considerable pushback from employees. A notable 74% of these companies have experienced employee reluctance or outright non-compliance with return to office policies.

Technical professionals, such as engineers, product managers, and designers, show a pronounced resistance to in-office mandates. Among these groups, individual contributors are the most steadfast in their opposition, with a significant 74% demonstrating reluctance to comply.

In our investigation into why employees are reluctant to return to the office, we identified two primary factors: logistical challenges and workforce preferences. Logistical issues include situations where employees may have moved beyond a reasonable commuting distance. Workforce preferences involve expectations set at the time of hire, particularly regarding the availability of remote work options.

These findings highlight the tension between employees and companies. While it’s reasonable for employees to expect the agreed-upon workforce structure at the time of hire, the realities of today’s market have forced companies to re-evaluate how they can operate efficiently. 

Suggestions for Addressing Return-to-Office:

  • Establish Additional Hubs or Micro Offices: Setting up flexible workspaces in locations where clusters of employees live outside the main headquarters' commuting range can offer the advantages of an office environment while maintaining workforce flexibility.
  • Proactively Identify Retention Risks: Stay ahead of potential issues by identifying key employees who may be at risk of resigning due to new in-office policies.
  • Run Employee Preference Surveys: Understanding employee preferences is crucial, even if it's not possible to fully meet them. The goal should be to align the needs of the business with the optimal workforce structure for both employees and the company.

Attrition Rates and Proactive Talent Management

Year-over-year attrition rates stand at a steady 16%, with "company-wide layoffs" and "non-regrettable" attrition accounting for 65% of departures.

Interestingly, 83% of companies implemented strategies to manage out underperforming employees, with “strengthed formal performance reviews” and “implementing performance improvement plans” as the top strategies. This indicates companies are taking a structured approach to identifying and removing low-performing employees.

As companies continue to face a challenging sales climate, difficult fundraising environment, and an anemic IPO market, they will feel pressure to do more with less. The focus on measuring performance is intended to drive productivity as efficiently as possible. Performance-based cultures will become increasingly ubiquitous in 2024.

Suggestions for Creating a Performance-Based Culture:

  • Improve Your Career Leveling Framework: Establish a framework for career progression, ensuring that performance measurement is based on objective criteria. This allows for a fair and consistent evaluation of employees.
  • Implement Formal Goals and OKRs: Employees should clearly understand what constitutes success and receive regular updates on their progress. Without measurable goals, aligning individual activities with the broader company objectives becomes near impossible.
  • Train Managers to Provide Effective Feedback: Equip managers with the skills to provide real-time coaching and feedback. Many managers fail to provide timely, actionable, and specific feedback leading to confusion and decreased accountability.  

Final Thoughts for 2024

Market conditions for startups will likely remain challenging for the foreseeable future. Companies should closely monitor their burn rates, prioritize efficient growth, and look for opportunities to streamline and automate wherever possible. 

Employees should anticipate a heightened emphasis on quantifiable performance and a push for more in-office work. On the other hand, companies should be prepared for employee resistance to changes in the workforce structure and should explore strategies to support and motivate their staff.

In 2024, the most successful companies will focus on how to operationalize their ideal workforce structure, retain and engage key employees, and achieve results with fewer resources. 

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