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Determining Early Employees Compensation and When to Scale Up Our expert, serial entrepreneur, author and CEO of The Container Store, Kip Tindell discusses what to consider when paying early employees and when to expand beyond the early team.

By Kip Tindell

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Q: How should we decide the compensation for your first employees? And when is the correct time to scale up?
- Siddhant Gupta

A: Well, I think the best answer is, "til it hurts" -- assuming you've hired people wisely.

At The Container Store, our hiring philosophy is "one great person, equals three good people." We hire only about 3 percent of all who apply, and we take extreme care in finding and hiring great people. For example, since we want the best of the best, our interview process is quite thorough. There's an online application, followed by a phone interview, group interview with homework assignments, and then various personal interviews. As you can see, a new hire is not a quick decision for us. And it shouldn't be for you either.

While finding the right people for our company is important, it should be even more important for startups. As an entrepreneur, surrounding yourself with great people who are motivated, smart, energetic multitaskers, can truly make or break a fledgling company. And to attract and keep these great people you have to pay them well.

Related: 4 Advantages That Small Businesses Can Sell to Attract Top Talent

We actually spent many of our early years paying the great people we had hired more than we paid ourselves. And while this can be a tough pill to swallow when you're just starting out, it's actually the fastest way to make money, as it creates a win-win-win situation. Employees win because they're getting paid twice as much -- and what a delight for the entire team to work alongside other great people. The company wins, because it gets three times the productivity at two times the payroll cost. But most importantly, customers win with extraordinary service. And that keeps them coming back over and over again.

Here are some other pointers.

Hire people who believe in your company's higher purpose.

Of course, there are limits to what an entrepreneur can pay employees at the beginning. That's where employees' passion for the business comes into play. Those great, committed employees will sacrifice pay and perks, if they believe in the higher purpose of the company. So, it's important to identify and communicate your company's higher purpose -- beyond just making profits.

Passion is greater than experience.

And speaking of passion, consider making your first hire a peer to your customers. Who better to sell to your customers than someone who can share firsthand why the product is a must-have?

Related: Making Sense Out of Cents: Determining Employee Compensation

At The Container Store, we find that it's not as important to hire someone who has previous retail experience as it is someone who has a true interest in and passion for our brand. We've hired teachers, doctors, lawyers and homemakers, among other professions to work in our retail stores. These individuals with diverse backgrounds have come together with a common passion for The Container Store culture and an understanding that they can make a difference in our customers' lives.

When you scale up, create a "meritocracy."

When you do decide it's time to scale up and hire additional team members to join that very first employee, it's important to remember: Contribution isn't only about an employee's volume of responsibility or tenure, it also has much to do with you as the manager "praying for wisdom," so to speak, and trying to assess the contribution each employee makes to the company while also being aware of industry averages for that position.

If there are 14 employees reporting to you, for example, you want the person with the highest and greatest contribution to the company to also receive the highest compensation. And the employee with the 14th highest contribution will have the 14th highest compensation. That way compensation is directly commensurate with contribution.

I'm not an advocate of paying mediocre people well, but I'm a HUGE advocate of paying great people well. After all – talent is the whole ball game.

Related: The Smart Move for Growing Companies Is to Always Be Recruiting Talent

Kip Tindell

Author and CEO of The Container Store

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