It's not a common problem for bootstrapped startups, but if you do raise venture funding and find yourself hiring people by the dozen, this article may be worth reading. It presents first a general principle for how to deal with titles and promotions:
To begin, start with an extremely crisp definition of not only the responsibilities at each level, but the skill required to perform the duties. When describing the skills, avoid the generic characterizations such as “must be competent at managing a P&L” or “must have excellent management skills.” In fact, the best leveling tools get extremely specific and even name names: “should be a superstar recruiter – as good as Jenny Rogers.”
Next, define a formal process for all promotions. One key requirement of the process should be that promotions will be leveled across groups. If you let a manager or a single chain of command determine promotions unilaterally, then it’s possible that e.g. HR will have 5 Vice Presidents and Engineering will have 1.
This is reminiscent of how larger, formalised companies (like Accenture, where I used to work) deal with promotions, and it's a good way to avoid arguments about whether someone should get a raise or promotion or not. When the performance for each rank is defined clearly, the discussion shifts from "give me a raise" to "let me prove to you that I'm performing above my level" - which is generally a much healthier conversation.
Ben Horowitz's thoughts are worth reading if this is a topic of interest to you.
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