The Question Behind the Pay Raise

Compensation can correct an imbalance. It rarely restores a future.

I have mentored the same executive for several years. He is unusually capable, works for a frontier tech unicorn he still admires and has given it three demanding years of his life. There is no dramatic conflict with the founding team, no obvious cultural rupture, no competing offer waiting in the background.

He has simply run out of road.

For several months, we kept returning to the same problem. His performance remained strong, perhaps stronger than before, but the internal logic that had once sustained it was disappearing. The company still mattered to him. His role no longer did. Then the other day he suggested what appeared to be a practical solution. “Perhaps I should ask for a raise. It has been a while since I progressed. Maybe that is what is missing.” I asked whether he genuinely believed another 15% would make him want the job again. It was not a particularly sophisticated intervention. It worked because he already knew that it would not.

The question was never whether he deserved more money. He probably did. The question was whether money and motivation had begun to stand in for one another because neither he nor the company had found a better language for what was happening. What he wanted was not primarily an improved version of the same role. He wanted another cycle: a different order of problem, a new source of uncertainty, perhaps eventually a company of his own. The salary request was merely the first negotiable expression of something that was not yet negotiable.

Once he saw this in himself, he began to recognise it in his team. Several of his commercial leaders had recently asked for higher compensation while appearing less engaged than ever. He had assumed that they wanted more money. Some certainly did. Others were asking whether the company still contained a future in which they could recognise themselves. This is a distinction that early-stage companies tend to discover too late.

The ambiguity of compensation

The claim that money does not motivate people is plainly untenable. Compensation affects who joins, who remains and what sacrifices a company can reasonably ask someone to make. It determines material security and opportunity cost. It also conveys information. A salary is not only purchasing power; it is an institutional judgment about value.

Underpayment therefore creates more than dissatisfaction. It introduces a fracture between the company’s account of someone’s importance and the evidence contained in their payslip. Mission, equity and proximity to charismatic founders do not erase that fracture. In some cases, they make it worse by turning commitment into a resource the company quietly consumes.

Yet the inverse proposition, i.e, that higher compensation can restore durable motivation, is equally weak. A few years back, a large meta-analysis found only a modest relationship between pay level and overall job satisfaction. The correlation was approximately 0.15, rising to around 0.23 when the question was narrowed to satisfaction with pay itself. More money can make an employee happier with their compensation without materially changing their relationship with the work. More recently, Gallup’s retention data reveal a similar ambiguity. Pay and benefits were the largest single reason American employees gave for leaving in 2024, but accounted for only 16% of departures. Engagement and culture represented 37%; wellbeing and work-life balance, another 31%. None of this makes compensation secondary. It makes compensation multidimensional.

When someone asks for a raise, they may be pricing their labour. They may also be pricing an accumulated injustice, a loss of status, a repetitive role or the growing probability that they will leave. The same number can contain several different claims.

Organizations generally respond to the number because the number is administratively convenient. It can be benchmarked, approved, deferred or rejected. The underlying question, i.e., whether the employee still has a viable future inside the company, is much harder to place on a compensation committee’s agenda.

The frontier tech talent problem

This ambiguity is particularly consequential for the companies Entropia Capital backs and builds. Frontier tech businesses are unusually dependent on concentrated knowledge. A small number of people often carry a disproportionate share of the company’s technical memory, regulatory understanding, commercial trust and operating judgment. Their value is not fully contained in a job description. It resides in what they have learned over time: why one technical path failed; which data can be trusted; which clinical, scientific or industrial partner can execute; where a regulatory argument remains fragile; which customer objection conceals a real implementation constraint; how the system behaves outside a controlled demonstration.

In conventional labor accounting, an employee leaves and another is recruited. In a deep tech company, the departing employee may take part of the company’s accumulated learning curve with them. This risk is intensified in the small, open economies where Entropia operates. Singapore, Dubai and Luxembourg can attract exceptional international talent, but their specialized labor markets remain relatively thin. Expertise is mobile, replacement cycles are long and senior hires often carry significant geographic and family constraints. A hiring error cannot always be absorbed by a sufficiently large local market.

Retention in these companies is therefore not merely an HR objective. It is a form of continuity engineering. Gallup estimates that replacing an employee in a technical role can cost around 80% of annual salary, while replacing a leader or manager may cost approximately twice their salary. Such estimates are necessarily imprecise, but they still omit the effects that matter most in an early-stage company: delayed milestones, weakened customer relationships, slowed regulatory work and the departure of knowledge that was never documented. For a company with limited runway, losing a critical operator can alter the financing trajectory.

The usual response is to pay more. Sometimes this is correct. It is rarely sufficient as a theory of retention.

When competence becomes a trap

The people most exposed to this problem are often the company’s strongest performers. They join during a phase of genuine uncertainty. The initial role is poorly defined because the company itself is poorly defined. They build the function, recruit the first team, close the first serious customer or convert a scientific proposition into an operational system. The work is exhausting, but it is formative. Every quarter changes the nature of the problem.

Then the company begins to stabilize. What was once invention becomes execution. The employee’s judgment is encoded into routines, meetings and processes. Because they are exceptionally reliable, they are given more responsibility for maintaining what they created. From the company’s perspective, this is evidence of trust. From the employee’s perspective, it can feel like being imprisoned by competence. They are too valuable in the current role to be allowed to abandon it, but no longer sufficiently challenged by the role to inhabit it fully.

Startups often misread this moment. They add a title, a team or a performance bonus. Yet the problem is not necessarily a shortage of volume. It is the disappearance of novelty. More of the same responsibility is not a new cycle. A larger team is not inherently a larger problem. A promotion that leaves decision rights unchanged merely formalizes the existing constraint. Research on self-determination at work is useful here, provided it is not reduced to a motivational slogan. It suggests that sustained motivation depends in part on autonomy, developing competence and meaningful connection to others. Challenge matters when it expands agency and capability. It matters less when it simply increases load. A top performer asking for a raise may therefore be asking whether the company can still produce a version of them that does not yet exist. That is not a question compensation can answer alone.

Recognition is not praise

There is another recurrent source of confusion. Companies often respond to the limits of compensation by invoking recognition, as though a sincere thank-you were the non-monetary substitute for a salary adjustment. Recognition is not a substitute for fair pay. Nor is it synonymous with praise. In organizational terms, recognition means that contribution changes position. It produces greater trust, access, authority, visibility or scope. It alters the relationship between what the employee carries and what the institution allows them to decide.

Gallup and Workhuman followed nearly 3,500 employees from 2022 to 2024 and found that those receiving high-quality recognition were 45% less likely to have changed organizations two years later. Only 22% of employees believed they received the right amount of recognition. The finding should not encourage startups to industrialize gratitude. Recognition systems become hollow when they increase the frequency of appreciation while leaving the distribution of power untouched. A person who repeatedly rescues important projects but remains excluded from strategic decisions is not suffering from insufficient praise. They are receiving contradictory info: the company depends on their judgment operationally but does not recognize it institutionally. A bonus may soften that contradiction. It does not resolve it.

The company they joined no longer exists

There is a further difficulty that appears as startups mature. Employees can remain deeply loyal to the company they joined while becoming alienated from the company that now exists. This is not always a story of cultural decline. Transformation is part of company building. A research project must become a product; a product must develop commercial discipline; an informal team must acquire governance; technical possibility must submit to procurement, regulation and economics. The early employees who made one stage possible are not automatically the people who will find the next stage meaningful. Some flourish as the organization scales. Others discover that their commitment was attached to a particular kind of company: smaller, more technical, more direct, less procedural or more willing to operate without certainty. At this point, compensation acquires another function. It becomes the price of estrangement. The employee is no longer being paid only for the work. They are being paid to remain inside an organization whose direction, tempo or politics no longer fit them. A sufficiently large increase may delay the departure. It may even be economically rational for both parties. But the company should be precise about what it has purchased. It has bought time, not necessarily renewed commitment.

Counteroffers often fail because they answer the question the company can afford rather than the question the employee is asking. “If we matched the offer, what would still be wrong on Monday morning?” is generally more revealing than “What would it take to keep you?”

The two conversations

When a critical employee asks for higher compensation, the company owes them two separate conversations.

The first concerns fairness. Is the employee paid appropriately relative to the external market, their internal peers and the responsibility they actually carry? Has the role expanded without a corresponding change in compensation? Is the equity meaningful, or is it being presented as valuable while its probability, dilution and liquidity remain obscure? This conversation should be conducted without appealing to culture or purpose. If the person is underpaid, the company should say so and, where possible, correct it.

The second conversation concerns trajectory. Does the employee still want the future the company can realistically offer? Are they learning? Do they possess authority commensurate with their responsibility? Do they identify with what the company is becoming? Is there another cycle available inside the organization, or would creating one amount to inventing a position that neither the company nor the employee truly needs? These conversations should remain separate because each can be used to avoid the other.

Managers sometimes psychologize a legitimate compensation request: perhaps the employee needs more recognition, more purpose or a development plan. Employees, in turn, sometimes financialize a deeper departure: perhaps another 15% will make a completed chapter feel unfinished again. The purpose is not to discover whether money or motivation is the “real” issue. Both can be real. The purpose is to prevent one from concealing the other.

The problem is that most companies begin this inquiry only after the salary request has been formalized. By then, the employee has assembled market data, spoken with peers or taken calls from recruiters. A diffuse dissatisfaction has become a position to defend. The better conversation takes place earlier. Not “Are you happy?” (a question too broad to produce useful information) but something closer to:

What would need to be true a year from now for you to believe that staying was the right decision?

The value of the question lies in its time horizon. It forces the company and the employee to consider not only the quality of the present arrangement, but whether that arrangement contains a credible future.

Retention is not permanence

Venture-backed companies tend to treat retention as an unconditional good. In reality, permanence is neither possible nor desirable. The objective is not to keep every strong employee indefinitely. It is to preserve alignment between the company’s next constraint and the employee’s next ambition.

Sometimes that alignment can be constructed. A new market, product, technical problem or level of authority can create a genuine second cycle. At other times, the company has no honest way to offer what the employee needs. Manufacturing a role to prevent a departure can be more expensive than the departure itself. It creates ambiguous authority, slows succession and places a disengaged senior person between the company and someone for whom the next stage would be formative.

In such cases, helping an exceptional employee leave well may be a stronger act of management than retaining them through a counteroffer. This is particularly difficult in frontier technology, where talent scarcity encourages companies to hold on to people long after the underlying exchange has weakened. But physical presence is not the same as commitment, and continuity cannot be secured indefinitely through compensation. A raise can correct an imbalance. It can acknowledge an expanded role, repair a legitimate grievance or share more fairly in the value someone helped create. These are sufficient reasons to grant one.

What it cannot do, by itself, is restore a future.

Before deciding what someone should be paid to stay, a company should understand what, precisely, they are being asked to stay for.