Rent the Runway, the online clothing-rental startup that’s on track to bring in $100 million in revenues by year’s end, has overhauled how it compensates employees.
Starting immediately, the company is eliminating performance bonuses and instead incorporating previous bonus potential into each employee’s salary, Jenn Hyman, Rent the Runway cofounder and CEO, told Business Insider.
In effect, all 950 employees will see a boost to their salary — though those who hit their bonus thresholds won’t necessarily have any more money in their pocket. Hyman says the change is meant to underscore the company’s trust in its employees and to streamline its efforts to scale the business.
“We’re saying we trust you as a team member, we trust your best of intentions, we trust that you’re working your butt off, and sometimes, the work that you do is going to dramatically impact our financials, and sometimes it won’t,” she said. The important thing, Hyman stressed, is that employees are given the resources to grow at the same pace as the company, in terms of learning and taking on new and additional responsibility.
Rent the Runway declined to specify how much the compensation move would cost the company. The size of raise employees will receive will vary depending on their previous bonus potential, which was determined by level and tenure at the company as well as performance and contribution.
“I think it’s one of the most important things we’ve ever done as a company,” Hyman said of the startup, which was last valued between $400 million and $600 million.
The decision to end bonuses and boost salaries came after repeated feedback from employees who said the potential of a bonus was “a distraction from learning,” according to Hyman. Employees tended to provide “100% positive” feedback on their coworkers’ performance because they didn’t want to affect a colleague’s take-home pay. The absence of constructive criticism ended up stunting the growth of employees and the company as a whole, Hyman said.
“The candidness was often missing, and therefore, we weren’t learning as much as we could’ve, which didn’t allow us to scale as much,” Hyman told Business Insider.
Now, with bonus potential out of the picture, Hyman hopes employees will shift their focus from near-term compensation goals to “those big, hairy, audacious goals that are going to impact the business,” as well as begin sharing candid feedback with management and colleagues.
After years of considering an alternate compensation model, Hyman said it’s time to “forge new territory based on the culture that we want to create at Rent the Runway — which is a culture of learning.”
Though it’s a drastic change, Hyman ensures they’re committed. “It’s not an experiment, we’re going to make this compensation — giving everyone a raise — fundamental to scaling the company.”
The compensation change comes after a rocky 2015 in which Fortune investigated the “exodus” at Rent the Runway of several top-level executives, who were either fired or left the company over the span of 10 months. The report cited former employees and investors claiming Rent the Runway’s company culture to be generally hostile and its management team disorganized. Hyman denied the characterization.
Rent the Runway also struggled last year with the launch of its Unlimited subscription service, shuffling through dozens of iterations before getting it right. The service charges customers $139 per month — or about $1,700 annually — creating a steady and reliable revenue stream for the startup.