Ever walked into a comp cycle knowing the budget was a lie?
Most startups under budget their comp cycle and then act surprised when the math doesn’t work.
I;m sure you've lived this.
You’re given a tiny pool to “cover increases”, and by the time the cycle kicks off it’s paying for things you never planned for:
Overdue out-of-cycle increases that got pushed into this review.
Promotions that have been delayed for months.
Pay equity fixes that never quite made it to the top of the list.
No wonder the budget blows up . You tried to do everything with nothing.
Instead of one nice round percentage, budget against four specific buckets:
Market adjustments – roles that have drifted below market and need a catch-up just to stay competitive.
Merit increases – performance-based moves for people you want to keep and stretch.
Promotions – step changes for people already operating at the next level. (Not the same as merit.)
Pay equity – structural gaps you already know about and keep promising to fix “next cycle”.
When you cost each of these upfront, a few things happen:
Finance sees a clear model they can defend to the board, not a nice round number.
You can say “no” or “not this cycle” with a reason, not just vibes.
You decide up front which buckets you’re willing to underfund instead of pretending a 3% pool will magically solve eight different problems.
If you want a reality check, take last year’s comp cycle file and tag every change to one of these five buckets. You’ll see fast where you were underfunded.
Finance is trying to protect the company; you’re trying to protect your people. This framework helps you meet in the middle.
How are you budgeting across these buckets today? Anything you’d add or cut?