Why great startups pay higher salaries

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Why great startups pay higher salaries

By Dr. Arthur Krebbers

I remember the graduate job dilemma well: “Work for a large firm, learn on someone else’s wallet!” was one option touted to me. Versus “Join a young organisation and get some real responsibility!”
I imagined that option 2 would be less financially rewarding. Surely an “Incorporated last year” NewCo cannot afford to pay you a half-decent salary?

Not so. Recent research by business researcher J. Daniel Kim on the starting salaries of MIT graduates finds that venture-backed startups pay c. 10% more than established companies. No wonder that in 2014 around 15% of their numbers got hired by entrepreneurs — up from just 1% in 2006!
So why are VC’s allowing their portfolio firms to throw these big cheques around?

Well, only a strong team can deliver that hockey stick growth, and it turns out that a wage premium can help you bag the best candidates away from Apple and GE. Kim finds that the graduates joining startups are more in demand. They have at least 2 job offers, and tend to emanate from the MIT engineering school rather than the department of management (where Kim happens to work).

These employees #5 and #6 aren’t just Clever Chloes, they are also Risky Rogers. They rate “job security” and “employer reputation” as relatively unimportant. Instead, their preference is for “creative and challenging work”.
And in their job hunt they are more patient, willing to forgo the first offer that comes their way. They will hang around the crossroads, scouting for that well-paid and exciting opportunity that solves their dilemma.

Kim, J.D. “Is there a startup wage premium? Evidence from MIT graduates”. Research Policy, 2018

source: medium.com

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