Why do you think it would be a morale nightmare? If you're doing well at your job, wouldn't you take comfort in knowing the person down the line who isn't pulling his weight will be cut out of the company at some point? High expectations are motivating.
It's countered by paying above market salaries and ensuring that these salaries _remain as such_ (even going to the point of where employees aren't discouraged from interviewing elsewhere to "sample the market").
Microsoft, I believe, does something similar. Whether it's the right approach is another matter.
Browsing reddit.
Is it a standard practice for startups for keep many employees to justify raising more funds?
They have no significant changes in how the site works, at-least in the last 2 years or so. The site speed, though better, still sucks. No new features. Site gaming is rampant (just look at the comments).
What are they doing?
Ad sales. It isn't a very headcount-efficient endeavor once you get past self-served options. A lot of the big corporate branding accounts who have huge amounts of money to burn and don't track conversions (I believe in poker these are referred to as "fish") require someone to chat up the media buyer for a while.
Branding campaigns are only a backup strategy, mind you, in case that Digg doesn't sell out their inventory of inflated page views by rabidly anti-commercial poor adolescents. For some unfathomable reason.
I like reddit better, but the digg guys are also doing some cool stuff.
HR, legal, finance, PR, business dev, management, senior management, QA, tech support
K.I.S.S. like HN !!
That alone drove me to Reddit.
