It’s no secret as an early stage startup, you most likely don’t have enough capital to pay market rates for talent when it comes time to hire, and that’s ok. For some people it’s not all about the money and there are ways to design a compensation package that works for both you and the talent you are looking to hire.
In most cases equity will be the key competent in your compensation package when it comes to presenting an offer to a candidate. What is equity you ask? Essentially, equity is a % of ownership an employee (Founder/Co-Founder, employee, etc.) has within a company and the value (i.e. money) an employee possesses. Equity is extremely important to you as a Founder but unfortunately one of the biggest mistakes young Founders make is not valuing equity as much as they should. “How much equity should I set aside” — Experts recommend setting aside anywhere from 10-20% equity in your company based on who you are hiring initially.
There is no certified formula for deciding who gets how much equity. The factors that should be considered when deciding how much equity a new employee gets include what their role is, responsibilities within the company and whether or not they are receiving a salary as well or is it just equity based compensation. Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Most early startups use a “dynamic equity” model where the allocation of equity is based on a team member’s actual contributions. The dynamic model assigns a relative value to the various contributions from each participant. This system allows founders more flexibility in assessing equity percentages as contributions shift over time.
Other things to take into consideration when developing a compensation package for your early employees include flexible working schedule, unlimited vacation time, possibility to work remotely, selling them on the product and future growth of the company as well as being on the ground floor of a potential high growth startup.. Oh yeah, having a beer tap or two and a ping pong table isn’t a bad incentive either!