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LSVP 2022 EOY HR Trends

Original Post by Beth Karlsson, LSVP's People & Culture Partner

Lightspeed’s annual HR and Recruiting Trends Report surveyed how 190 startups are preparing for economic uncertainty in 2023 and beyond.

No one said startups were easy, but 2022 has been exceptionally hard for founders and employees at companies trying to build new businesses.

Companies that only recently recovered from the shock of Covid now face a looming recession and record levels of inflation. As end-of-year performance management and compensation cycles loom, every executive team is wondering: How do we support employees while protecting the viability of the business?

Startups are often forced to make decisions with incomplete data. And sometimes they only have one shot to get it right. As investors across consumer, enterprise, health, fintech, and more, Lightspeed is fortunate to have a broad view across the startup ecosystem.

Our 2022 HR & Recruiting Report explores trends from 190 companies. We hope this guidance will help you make decisions in this uncertain climate, by understanding how your peers are navigating the same choppy waters.

Our overall finding is this: In the face of market volatility and high inflation, startups have largely stuck to their playbooks — so far. Even so, they have opportunities to increase employee satisfaction by thinking and acting unconventionally as they gain clarity on our economic future.

Inflation is Not Driving Salary Increases

When public and private market valuations contract, conserving cash becomes a companywide priority. In the face of 8% inflation, 59% of companies are unlikely or undecided on raising salaries to match.

While inflation is not driving wage growth, compensation parity requirements may result in salary increases, with 68% of companies somewhat or very likely to adjust salaries to address pay equity.

End-of-year salary adjustment budgets remain unchanged from historical averages, with 29% of companies targeting 5–6% and 23% targeting 3–4%.

The challenge: Given historically high inflation, companies will have to make difficult decisions on how to allocate their salary increase budgets. Leaders should expect employees to ask about inflation matching and some may decide to leave the company if their real wages decline.

The opportunity: Companies must communicate effectively about their decision-making processes and financials to earn employees’ trust and goodwill.

Equity Approaches Remain Unchanged Despite Market Instability

Companies do not plan to offset lower 409a valuations by changing their equity strategy. 64% are unlikely to reprice options and 69% are unlikely to give additional grants to account for a lower valuation. In the short to medium term, this means some employees will be underwater in the value of their equity grants.

As of this report, 67% of companies have not changed their equity approach despite 2022’s market turmoil.

The challenge: Equity is a major component of startup compensation. Stock grants are used to both attract and retain employees. As companies receive lower valuations compared to previous rounds, some employees will have underwater options and may lose confidence in their long-term value.

The opportunity: Companies can consider alternative equity grant structures and compensation strategies that would allow employees to participate in economic recovery while limiting further downside exposure. Such adjustments are a show of good faith and confidence to employees, investors, and prospective recruits.

Companies Are Not Cutting Back on Benefits

Many companies are finding that even in this volatile economic environment, they must provide compelling benefits even at increased cost. 94% are keeping or expanding their benefits regardless of year-over-year cost increase.

Contrary to recent reporting about a pullback in parental leave benefits, 98% of companies are keeping or expanding their offering.

The challenge: While cost cutting may be necessary to ensure a company’s stability, reducing benefits is very uncommon and will put them at a disadvantage in hiring and retaining employees.

The opportunity: HR departments can explore low or no cost additions to core benefits packages that increase value and utility for employees. Warning: if your company’s financial situation requires reducing core benefits like health or dental insurance, or parental leave, it’s not the right time to add a soft benefit like free event tickets or gift cards in an attempt to make up the difference; it won’t.

Navigating uncertain times is never an easy task. Facing constraints head on with honesty and transparency goes a long way in helping employees feel included in the dialogue and allows employees to share in the problem solving.

Parting Wisdom

Be transparent and genuine, and communicate what you can as soon as you can. We often see that when you approach challenging times with these guidelines in mind, it ultimately yields a stronger team.

Think of this then as your moment — connect with your employees in a deeper, meaningful way, and build a level of trust and engagement that will serve you well for the years to come.

Full 2022 EOY HR Report

LSVP 2022 Workplace Report

Original Post by Luke Beseda, LSVP's People Partner

The Lightspeed Founder Success Team Presents our Annual Workplace Re-Entry Report of 218 Startups and their approach to returning to the workplace.

In the early days of the pandemic, many pundits predicted a remote work renaissance and the abolishment of traditional offices. We imagined nomadic knowledge workers roaming the globe or migrating to low-cost rural areas. While this was the case during the mandatory lockdown, post-covid work structures will fall on a broader spectrum.

To answer the most common questions from Founders, Lightspeed ran our second annual Workplace Re-Entry & Remote Work report. We asked companies within our portfolio and outside of it from across the startup ecosystem how they will operate in a post-pandemic world.

What we heard might surprise you: while the traditional office model is indeed broken, it’s not dead. Offices remain an important driver of company culture and employee connection. At the same time, employee’s have greater flexibility in how they work and more leverage in compensation decisions, regardless of location.

Flexible Work is Here to Stay

Prior to 2020, only 37% of companies allowed flexible or remote work. Going forward, 95% of startups will allow for remote work, with 41% not requiring employees to ever return to an office.

What this means for startups: Employees will expect greater flexibility in how and where they work. Ensure your workforce plans align with current and future employee expectations. Surveying employees is an essential step when designing a plan.

Offices Remain Important to the Future of Work

The rapid shift to remote work hasn’t been seamless. Cultural challenges, 48%, and employee demand, 40%, were the main drivers of office re-opening.

What this means for startups: We predict a move away from centralization around headquarters to a “hub and spoke” model with many smaller offices near clusters of employees.

Hiring Remains Highly Competitive

Nearly every industry has felt the tight labor market over the last 6 months. 88% say their hiring constraints are due to compensation against other offers & internal recruiting capacity. Only 3% of companies find candidate location an impediment to hiring.

What this means for startups: The days of candidates accepting lower salaries at startups are coming to an end. We have already seen a compression of the historical startup salary discount compared to late-stage and public peers.

What this means for startups: Internal recruiting capacity is an often overlooked metric. The market for strong recruiters is white-hot, preventing many companies from building the function in line with headcount plans. Executives should carefully map their recruiting capacity to headcount plans and expand teams accordingly at least 1 quarter in advance.

Hiring Plans Don’t Account for the Great Resignation

Overall attrition predictions for 2022 are not as bleak as the Great Recession would lead us to believe. Companies are projecting lower attrition this year compared to 2021.

What this means for startups: Getting attrition wrong is painful. Annual operating plans are built on assumptions of employee productivity. Any unexpected resignations will rapidly spiral into missed company goals. Executives should revisit their attrition assumptions and create contingency plans in case the Great Recession emerges.

Companies Are Minimizing the Impact of Location on Salaries

Given compensation is the primary challenge to hiring, companies are unsurprisingly searching for solutions. Before 2020, the vast majority of startups used employee location to determine salaries. 50% of companies will now offer a location-agnostic or single-tier premium salary (ex. SF & NYC) for US-based employees.

What this means for startups: Companies must understand the compensation philosophies of their closest hiring competitors to remain compelling to candidates. We predict a continued smoothing of regional salary differences and a move to one US-national rate with premiums for expensive markets.

Where to Go From Here

Two years into the pandemic, companies have learned how to adapt their operating models to align employee productivity with engagement. There is no one-size-fits-all model for company building, and employees will have more options than ever before. We are still in the early innings of the shift to remote work, learning and adapting as we go.

Full 2022 Workplace Report

Gem's Recruiting 2022 Report

For their 2022 report, Gem surveyed over 500 talent acquisition professionals, about their priorities, pain points, and action plans for the year. There were three broad trends that emerged for this year:

  • Data-driven recruiting is becoming the competitive advantage
  • Continued commitment to (and challenges of) diversity hiring
  • A growing focus on employer branding and candidate experience

The full report can be found below. For more information & a discount to Gem, check out their profile on our vendor marketplace here.

Carta's 2022 Compensation Report

Carta's 2022 State of Startup Compensation report pulls from a 127k+ data set to cover trends in headcount, payroll, salaries, and remote work.

Key Trends: 
  • Remote hiring soars: In 2018, about 35% of new hires were based in a different state than the primary company headquarters. So far this year, that number has ballooned up to 62%.
  • Geo-adjusting is the norm: The vast majority of companies (84%) take employee location into account when deciding on compensation packages.
  • Engineering is a key hire: Engineering accounts for nearly half of payroll spend in companies valued between $1 and 10 million.
  • Terminations rise: Across all of Carta's platform, involuntary terminations made up 29% of departures in May 2022 (the rest were employees leaving their jobs by choice.) That's nearly double the 15% termination share recorded in August of 2021.

Carta's full report can be found below.

2022 State of Engineering Report

Below is Terminal's 3rd edition of their State of Engineering report. The 2022 report, based on over a thousand respondents across Canada, Latin America and the US, indicates that engineers have settled into a remote-first mindset. Sixty-eight percent report that working from home makes them more productive, and 7/10 want to work in a remote setting.

Terminal's full report can be found below.


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