What’s Happening
A viral post that’s been ricocheting across LinkedIn, X, and Hacker News this week distilled something a lot of startup employees have been feeling into one blunt sentence: “Startups love meritocracy until you ask for a raise.” The phrase—paired with the defiant parenthetical “I will not promote”—has become a rallying cry for workers who say they’ve been told their output matters more than titles, only to discover that the absence of titles also means the absence of a clear path to earning more money.
This isn’t a new complaint, but the timing is pointed. We’re in a hiring environment where venture-backed companies have spent the last 18 months cutting headcount, flattening org charts, and preaching do-more-with-less doctrine. Many founders adopted flat structures not out of philosophical conviction but out of financial necessity. Now, as the funding environment thaws and remaining employees look around, they’re realizing that “flat” often means “frozen”—frozen titles, frozen comp, frozen upward mobility. The resentment is palpable, and it’s starting to affect retention in measurable ways.
According to Carta’s latest compensation data, median startup salary increases for non-executive employees grew just 2.1% year-over-year in 2025—barely keeping pace with inflation and dramatically underperforming the 4-6% bumps common at larger tech companies tracked by Levels.fyi. The data paints a clear picture: startups are systematically under-investing in the people they already have, even as they spend aggressively to recruit new ones.
Why Founders Should Care
Let’s be direct: if you’re a founder running a team of 15 to 150 people and you haven’t had a serious, structured conversation about internal compensation progression in the last six months, you are almost certainly losing your best people—or you’re about to. The cost of replacing a mid-level engineer or senior product manager at a startup isn’t just the recruiting fee. It’s the three to six months of lost institutional knowledge, the drag on the teammates who have to pick up the slack, and the cultural signal it sends to everyone who stays.
Harvard Business Review published a widely cited analysis showing that organizations that explicitly brand themselves as meritocracies often produce worse pay equity outcomes, not better ones. The reason is counterintuitive but important: when leaders believe the system is inherently fair, they stop scrutinizing it. Managers at self-described meritocracies gave larger bonuses to men over equally performing women, and were less likely to correct pay disparities when they were surfaced. The label becomes an excuse to stop paying attention.
For founders, this is a business problem, not just a culture problem. The market for senior individual contributors—the people who actually ship product—is tighter than it’s been since 2021. As The Wall Street Journal reported, startups are increasingly losing experienced talent to mid-size companies and even Big Tech, which have gotten more competitive on total comp while also offering the stability that startup equity can’t always match. If your retention strategy is “we’re a meritocracy and great work gets recognized,” but recognition never materializes as dollars, you’ve got a ticking time bomb.
Who’s Already Moving
Pave has emerged as one of the most important companies in this space. The San Francisco-based compensation management platform helps startups benchmark pay against real-time market data and build transparent comp bands. They raised $100 million in Series C funding and now serve over 8,000 companies. Pave’s pitch to founders is simple: you can’t claim to be a meritocracy if you don’t have the data infrastructure to actually reward merit consistently. Their tools let employees see where they fall within a band and understand what it takes to move up.
Carta, already well-known for cap table management, has been aggressively expanding its Total Compensation product, giving startups the ability to model salary, equity, and bonus packages against industry benchmarks. Their dataset—drawn from tens of thousands of startups on the platform—is arguably the most comprehensive view of how early-stage companies actually pay people. For founders who’ve been winging it on comp, Carta’s tools are a wake-up call.
Figures, a European compensation benchmarking startup, is tackling this from a transparency-first angle, particularly as EU pay transparency regulations come into effect. They’ve built a real-time database of salary data across startups in Europe, and they’re seeing massive demand from founders who suddenly need to comply with new disclosure rules. What’s happening in Europe is a preview of where US startups are headed—voluntarily or not.
Lattice continues to evolve from a performance management tool into a full people-operations platform. Their compensation management module ties performance reviews directly to pay decisions, which addresses the core complaint head-on: if you’re going to tell people that performance drives pay, then the software should enforce that connection, not leave it to a founder’s gut feeling during a quarterly budget review.
The Startup Opportunity
There’s a meaningful gap in the market right now, and it sits at the intersection of compensation transparency, internal mobility, and retention analytics. Here’s where founders building new products should look:
- Compensation co-pilots for managers. Most startup managers have never been trained to have compensation conversations. An AI-powered tool that coaches managers through raise requests—surfacing market data, internal equity comparisons, and budget impact in real time—would be enormously valuable. Think of it as a Copilot for the most uncomfortable meeting on every manager’s calendar.
- Internal talent marketplaces for startups. Big companies like Unilever and Schneider Electric have built internal mobility platforms. Startups haven’t. A lightweight tool that lets employees at 50-500 person companies signal interest in new roles, stretch projects, or lateral moves—without going through the awkward “I’m thinking about leaving” conversation—could dramatically reduce attrition.
- Equity literacy platforms. Most startup employees still don’t understand their equity. They don’t know their strike price, their vesting cliff implications, or what a down round does to their options. A consumer-grade financial education product specifically for startup employees—think Robinhood meets Carta—could build a massive user base and monetize through premium financial planning features.
- Pay transparency compliance tools. With pay transparency laws expanding across US states and the EU’s Pay Transparency Directive taking effect, startups need lightweight compliance tools that don’t require a full HR team to operate. The company that builds the “Stripe for pay transparency”—simple, API-first, and startup-friendly—will own a fast-growing category.
“The biggest lie in startup culture is that flat structures are egalitarian. They’re not. They just move the power dynamics underground, where they’re harder to see and harder to fight.” — Liz Fosslien, co-author of No Hard Feelings and organizational behavior researcher
Watch Out For
Transparency isn’t automatically a good thing if you implement it badly. Several startups that rushed to publish salary bands in 2023 and 2024 discovered that visibility without context creates as many problems as it solves. Employees who saw they were at the bottom of a band felt demoralized—even if they’d only been in the role for three months. Companies that published bands but didn’t update them regularly found themselves locked into stale numbers that didn’t reflect market shifts. Transparency is a commitment, not a one-time announcement.
There’s also a real risk that the pendulum swings too far toward formulaic compensation. Some startups have adopted rigid leveling frameworks borrowed from Big Tech—complete with detailed rubrics and IC levels from L3 to L8—that feel absurd at a 30-person company. Bureaucracy isn’t the antidote to unfairness. Founders need to find a middle ground: enough structure to be credible, enough flexibility to reward exceptional contributions that don’t fit neatly into a rubric.
Equity remains the wild card. For many startup employees, equity is the single largest component of their theoretical compensation—and the least predictable. The current trend of companies staying private longer means that equity is illiquid for years, sometimes a decade or more. Telling an employee that their “total comp” is $250K when $100K of that is in options they can’t sell for seven years isn’t meritocracy—it’s creative accounting. Founders who lean too heavily on equity as a substitute for competitive base salaries will continue to lose people to companies offering real, spendable money.
Finally, founders should be honest about a hard truth: some people on your team are going to leave no matter what you pay them. The viral discourse around startup compensation is partly driven by employees who were never going to be retained by a raise alone. They want career growth, mentorship, interesting problems, and a sense of trajectory. Pay is a necessary condition for retention, but it’s not sufficient. Don’t let the comp conversation distract you from the broader question of whether your company is a place where ambitious people can actually build a career.
The Bottom Line
The “meritocracy” label has become a liability for startups that use it as a substitute for actual compensation systems. If you’re a founder, this week’s viral moment is a signal to audit your own house before your best people do it for you—by accepting an offer somewhere else. Pull your comp data. Look at who’s gotten a raise in the last 12 months and who hasn’t. Check whether the gap between your newest hire and your most tenured IC has widened. If it has, fix it before someone posts about it.
The opportunity here isn’t just cultural. It’s commercial. The companies building tools to make startup compensation more transparent, more data-driven, and more fair are sitting on a category that’s about to get a regulatory tailwind and a cultural one simultaneously. If you’re a founder looking for your next idea, this is one of those rare spaces where doing well and doing right are pointing in the same direction. Don’t sleep on it.
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