Chapter 7: Compensation Strategy in New Ventures

Taking a life cycle approach, we examine the dominant compensation issues that occur at the early stages of growth in new ventures and apply organizational justice and agency theory to derive propositions relating to those key issues. Of particular interest are new ventures anticipating rapid growth such as those in technology-intensive markets. The dominant compensation issues analyzed in this chapter include (1) the distribution of equity among members of the team of founders, (2) the design of the pay package for key employees who are nonfounders, and (3) the compensation strategy for broad employee groups who are hired as the organization grows in size. A total of eight research propositions are developed predicting relationships between selected pay strategies and stage of growth for new ventures that foresee or experience rapid growth.