Rent the Runway ends employee bonuses, raises salaries

Dive Brief:

Online clothing rental startup Rent the Runway is dumping its performance bonus policy in favor of higher salary-based compensation for its 950 employees, effective immediately, Business Insider reports.
Rent the Runway cofounder/CEO Jenn Hyman, said the change reflects the company’s trust in its employees and is a way to streamline operations as it works to scale its business, according to Business Insider.
Raises will vary depending on employees’ bonus potential, which the company calculates by taking into account level and tenure at the company and performance. Jenn Hyman, cofounder and CEO, told Business Insider the decision comes after repeated feedback from employees that bonuses were "a distraction from learning."

Dive Insight:

The online clothing-rental startup has suffered major challenges in keeping up company morale, and swapping bonuses for increased salaries may incentivize employees to stay on board the ship. Last year the e-retailer lost a slew of executives, including: chief operating officer, chief financial officer, chief marketing officer, chief creative officer, chief technology officer, chief people officer and head of partnerships. In November 2015, Fortune reported that former employees faulted the company for an “unwelcoming, stressful and occasionally hostile” work environment.

Hyman told Business Insider the new pay initiative is one of "the most important things we've ever done as a company," and that she hopes it will allow employees to shift their focus beyond near-term goals.

Rent the Runway has a strong millennial following, especially given how consumers' growing environmental concerns fit with the retailer's model of reusing apparel. A study from Nielsen last year showed that 66% consumers are willing to pay more for a product if it came from a company that's committed to making a positive environmental impact, up from 50% in 2013.

Rent the Runway was estimated to have loaned its customers $1.35 billion of couture and other high-end clothing last year, when it also added designer sportswear to its offerings and brick-and-mortar showrooms. The company expects some $100 million in revenues by year's end and enjoys a valuation of between $400 million and $600 million, according to Business Insider.

The company launched an Unlimited subscription service in April: For a fixed monthly price of $139, women can rent out three pieces of designer clothing, rotating them for three new pieces once they're finished. But subscription services aren't what they used to be. While it once seemed an unstoppable model, innovators like online beauty subscription service Birchbox are beginning to struggle.

Birchbox recently attempted to move beyond its monthly boxes to increase traditional sales, even as it has scaled back its expansion and laid off employees. Several startups have found that investors once hungry to fund startups are becoming more wary of their long-term prospects. V.C. investment fell significantly in Q4 2015, dropping 30% to $27.2 billion, according to venture capital research firm CB Insights. And, as Fortune noted earlier this year, investors and employees are more likely these days to vet startups more stringently for signs of viability.