New survey suggests SA startups could be out of touch in paying employees

Do South African tech startup founders really pay employees as well as they claim to? A new survey released by Ventureburn today suggests that perhaps they don’t.

The Ventureburn Tech Startup Survey powered by Telkom Futuremakers sampled 260 SA tech startup founders in an online questionnaire.

Close to one third (31%) of respondents claim they pay their employees market-related salaries. Yet the same founders list remuneration as the top reason for employees leaving — 21% of founders list remuneration as the top reason why employees depart the company (see the below graphs).

This throws into question the knowledge that startups possess regarding market-related salaries. Additionally, are startups remaining truthful in this regard? In relation, 63% of respondents reported that their startup generated less than R100 000 a year.

Tech publication MyBroadband‘s 2017 South African IT salary survey published in July lists the average salary for IT professionals and executives as R41 455 per month. This, while the last Career Junction salary survey — conducted between October last year and March — puts a range of ICT salaries across different fields at R20 825 to R66 558.

Commenting on the survey’s finding, Nic Sephton-Poultney, country manager at specialist recruitment agency Robert Walters, said he’d noticed that fewer small businesses than before are offering employees benefits such as medical aid and pension fund (see the below graph).

In the survey, just one percent of founders say they offer to cover part of employees’ pension fund payments, while two percent said they offer medical aid.

“Remuneration is often the main reason for staff to make a move. They feel they are under-valued and can command a higher salary elsewhere,” he said.

However, Sephton-Poultney said it’s also possible that employees could opt to leave a company even while getting paid market-related salaries. This could be due other considerations such as leaving to pursue better career prospects or wanting to associate with a bigger corporate.

He added that other important influences like lack of support in their current role, lack of resources to fulfil function as well as limited personal development and training can also play a role.

This is in line with one of the findings of the survey, namely that founders listed pressure and culture as the other main reasons employees were leaving startups at 13% and 12% respectively.

More employees getting shares

However, South African startup founders appear to be warming up to the idea of remunerating employees via share options, with 12% claim they do doing so, up from eight percent in Ventureburn’s 2015 startup survey.

Similarly, more startups are remunerating employees via profit sharing, with eight percent of founders reporting they provide employees with a share of profits compared to six percent in 2015.

Only four percent of the startups who participated in this year’s survey gave their employees bonuses — this is up from three percent in the last survey.

Not great payers

However, since the last survey, startups appear to have become more tight-fisted with only three percent paying their employees above market salaries compared to six percent in the last survey — perhaps another indication of a slowing economy.

Considering working for a startup? A full 16% of respondents to this year’s survey said they paid their employees below market-related salaries.

Professionals set on working for startups might have to forego the usual perks and benefits they would get in a corporate job. About 30% of the startups surveyed said they do not provide their employees with additional benefits like pensions, medical aid and skills development.

However, there was a marginal increase in startups providing pensions to their employees. It’s still a scant figure, with only one percent of surveyed startups claiming to provide a pension compared to the last survey where none had a pension scheme in place for their employees.

So what benefits can you expect to get if you choose to work at a startup? For one, you might get some free food and be well caffeinated — 21% of founders claim they provide office benefits which include coffee and lunch.

Few startups are investing in their employees with 18% of startups claiming they provide skills development and further training, while 14% and 10% gave some form of productivity allowance and travel allowance respectively.

The survey found some disparities around remuneration by white-owned and black-owned startups. 37% of white owned startups claim they paid market related salaries in relation to 26% of black-owned startups (and 25% of black African owned startups).

Like the 2015 survey revealed, working for a startup may be exciting but perhaps not as lucrative as your average corporate job.

More information on the Ventureburn Startup Survey:

A picture of two worlds – black tech startups struggling, finds new survey
White males in Western Cape the most successful startup founders – survey
Slowing economy is biting into startups’ profit reveals Ventureburn survey
Startups hold unrealistic view on securing VC, angel funding suggests new survey
New survey suggests SA startups could be out of touch in paying employees
Infographic: the 2017 Ventureburn Tech Startup Survey
Read the full 2017 Ventureburn Tech Startup Survey presentation