Compensation at Startups

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Offer Package

How do you put the right compensation package together?

How do you put the right compensation package together?

Salary bands

It’s much easier to have a conversation with a candidate when you have market data vs. what you’ve just heard from your peers. Creating salary bands with multiple seniority or experience levels early on will help navigate tricky internal equity discussions down the road. Additionally, as you make more senior hires there will be fewer adjustments on both cash compensation and equity.

Develop a compensation structure with pre-set levels and corresponding bands for salary and equity to minimize subjectivity.

Salary.com⁠

is a great place to start. Let’s say you need to hire your first Sales Engineer in San Francisco but you don’t know where to start in terms of figuring out how to pay this person. You can look up, by title, what someone in this role makes and then refine further by any of the following: location, years of experience, education and number of direct reports. The results will show different percentiles ranging from 10th to 90th. This makes it very easy to create a salary band for Level 1 of a Sales Engineer, for example, and then build out different levels as the team grows.

Promotions/title changes need to be tied to the salary ranges in corresponding levels or bands. There may be exceptions to the rule. Create an exception process with a clear approval process. Do the hiring manager and the hiring manager’s boss need to be included? HR or Finance? Map it out and make sure the process is clear. The important thing is to make sure the same process is followed every time you go through the compensation and/or promotion process.

For an early stage company, cash is the most precious resource. It’s important to balance the right amount of cash and equity in an offer so that 1) cash flow is not a stressor for employees and 2) equity is parsed out in thoughtfully so there is equity still available for future hires and refresher grants.

Balance cash and equity

For base salary/cash, we recommend targeting the 50th percentile. For equity, we recommend targeting the 75th percentile. Below you will find salary bands for an Engineering Manager from Advantage HR/Option Impact survey. 1097 Companies were surveyed and segmented by the amount of capital raised. If you target the 50th percentile for a company that has raised between $0 and $3 million, you’re looking at a base salary of $120K. This number gradually increases as the amount of capital increases. Pretty simple.

Amount you've raised:

000

⁠

million

Cash Bands

Cash Bands

Lower Bound

Upper Bound

# of Companies

Average

10th

25th

50th

75th

90th

$117,533

$70,000

$166,428

$120,000

$150,000

$166,000

$10

172

$134,009

$87,300

$105,000

$130,000

$155,000

$180,000

$10

$25

106

$162,551

$129,700

$143,650

$160,000

$180,000

$200,000

$25

$50

172

$170,316

$135,700

$155,000

$170,444

$185,000

$200,001

$50

$75

115

$178,518

$150,000

$160,000

$176,375

$192,365

$213,400

$75

$100

206

$179,338

$150,000

$162,000

$182,000

$200,000

$205,400

$100

$250

206

$183,234

$155,936

$165,000

$180,073

$198,569

$210,000

There are no rows in this table

⁠

We recommend targeting the 75th percentile for equity, which in the example equity bands below, equates to 1.36% ownership in company (for a company that has raised from $3 to $10 million).

This

Salary Band Generator⁠

from

Assemble⁠

may be helpful (and it is free).

Equity Bands

Equity Bands

Lower Bound

Upper Bound

# of Companies

Average

10th

25th

50th

75th

90th

0.28%

0.02%

0.04%

0.10%

0.25%

0.62%

$10

172

1.17%

0.13%

0.25%

0.57%

1.36%

3.56%

$10

$25

106

0.59%

0.10%

0.18%

0.35%

0.80%

1.00%

$25

$50

172

0.26%

0.05%

0.09%

0.20%

0.34%

0.54%

$50

$75

115

0.16%

0.04%

0.06%

0.11%

0.19%

0.35%

$75

$100

206

0.17%

0.03%

0.05%

0.09%

0.19%

0.30%

$100

$250

206

0.13%

0.02%

0.04%

0.07%

0.16%

0.29%

There are no rows in this table

⁠

Providing equity at a higher percentile rewards employees for taking early risk. Employees are making a commitment to a management team, a mission, and an idea that may or may not become a profitable business. Additional equity grants (sometimes called refresher grants) should be based on performance and not awarded until an employee’s two year anniversary, at the earliest, assuming there is no change in title or performance. Seniority is a factor. We recommend refreshing employees at or above Director level at the 2 year mark and below the Director level at the 3 year mark. The most important thing is to have a defined philosophy around compensation and equity upfront. Be consistent and do not be afraid to enforce this policy.

Source: Advanced-HR - Option Impact, 2020 VCECS Status

This information is taken from
Advanced-HR⁠
’s (now
Pave⁠
) the leader in private company compensation data. Pave focuses on startup data from approximately 1500 companies nationwide.

A great resource on equity compensation is the

Holloway Guide to Equity Compensation⁠

. This is the first of many guides to be published by

Andy Sparks⁠

and contributors.

FAQ

I’m a founder. Should I pay myself?

The simple answer is yes. You need to pay yourself for one simple reason: peace of mind. Pay yourself a salary that allows you to live without being stressed out about your finances. Being a founder is hard enough without additional stress about your home life. Free yourself from having to think about your finances so you can be a happier, more productive founder.

I’m a founder. How can I possibly pay a new hire more than I make?

Chances are that from the very early stages of your growth, you’re going to be paying some employees more than you pay yourself in cash salary. Market compensation for certain roles is higher than for a typical startup founder. This isn’t unusual. And remember that you likely have significantly more equity compensation. Your salary can always be adjusted at a later stage, but it’s likely to always be true that others in the company will be making higher cash compensation than you.

⁠