Early-stage startups tend to spend early on payroll and ramp up quickly, with a $10 million payroll median for companies at valuations of $50-100 million. That means equity will be the focus of the conversation. Equity is ownership in the company, typically in the form of stock options. Various startups also use this as a means to reward the employees who perform well. In general, startup engineers typically receive some level of equity ownership in the company with 40% of mid-level engineers receiving 0.21-0.60% equity from their startup employers as of 2016. Compensation and Equity Calculator What is this? Other C-level execs would receive 1-5% equity that vests over time (usually 4 years). Those that don't are those you don't want to work for. Typically, performance periods are over a multi . And there are endless variations on the equity. Startup compensation guide: see thousands of startup salary and equity data points. Typical equity levels vary depending on the value the advisor brings, the maturity of the company, and the level of their involvement, which can vary from occasional phone-calls or introductions all the way up to being a kind of part-time, hands-on member of the team. This is the logic behind annual compensation evaluations. Since cash flow is the biggest challenge in a startup, equity compensation is beneficial for startups and companies with low MRR. Not all advisors will contribute the same amount of value. Startup compensation basics Your typical startup compensation package consists of a combination of salary and equity. Get typical startup equity %. Cash isn't a currency that early-stage startups want to use for advisor compensation. You may also have to defer your employees' compensations or take on an investing cofounder. Equity is non-cash compensation that represents partial ownership in a company. This is a tool we built at Front to improve the level of transparency we provide to candidates whom we end up making an offer to. If the formal advisor is "amazing" and "will also help with the fundraising process," he suggests going as high as 1 percent. You can see company payroll benchmarks broken into percentiles (10th, 25th, 50th, 75th, and 90th) by downloading the addendum to this report now. This is why bootstrapped startups tend to pay less in cash and more in equity. When talking about equity compensation vs salary, salary compensation is simply the amount of monthly income the rest of the employees get. Global engineers: typically $100K-150K, with a median of $125K. Forms of Advisor Compensation. Hence, the cash compensation lowers, reducing cash outflow in the normal course of business. Token equity: 0.1%-0.4% of max token . If the startup does decide to compensate its advisors with equity, it must decide how much equity to offer. In the context of equity plans, this includes working with brokers and transfer agents, facilitating equity transactions and tax payments for employees, ensuring that grants to executives are approved by a board compensation committee that meets all necessary . Any executive who receives equity has an incentive to commit to the company for longer, while the company reduces expenses by not paying an immediate full-time salary. You can read more about it here. being paid lower than market rate. However, monetary payment can be increased once you raise capital. In its ideal form, equity compensation aligns the interests of individual employees with the goals of the company they work for, which can yield dramatic results in team building, innovation, and longevity of employment. These could include metrics, such as an earnings per share (EPS) target, return on equity (ROE) or the total return of the company's stock in relation to an index. Use the previously mentioned factors to choose . Startup equity compensation is one approach that C-corporations use to ensure that company leaders stay around for at least a few years. 0.125-1.5% of equity, with standard vesting. For formal advisors, Dan recommends compensating them with startup equity that's worth between 0.1 percent and 0.5 percent of the company. In terms of actual percentage ownership in the company, 5% to 10% is a ballpark area to consider offering your potential CEO. Based on the role and contribution, company shares are offered in addition to a basic cash component. Value Added - Naturally, the amount of equity awarded should reflect the value of the advisor's services to the company. The neat round number of 1% is the most popular amount of equity for startups to give a General Advisor who works less than two days a month and is paid only in equity.. Every company has different cash and talent requirements, which explains the large percentage range. What is the typical equity compensation for a startup CEO? It is just an example and will need to be tweaked as per your business needs and how much contribution or value an advisor brings to it. As a rule of thumb, a non-founder CEO joining an early-stage startup (that has been running less than a year) would receive 7-10% equity. At a typical venture-backed startup, the employee equity pool tends to fall somewhere between 10-20% of the total shares outstanding. This decision is generally based upon the following factors. Anthony Rose. Equity is the great compensation equalizer in startup companiesthe bridge between an executive's market value and the company's cash constraints. That means you and all your current and future colleagues will receive equity out of this pool. Per the 2021 Think & Grow report on Australian startup salaries, a junior software engineer working at a startup valued at $0-$5 million can expect to earn an average of $71,447 (with an average equity share of .008 per cent). Middle Stage - Series A+ The percentages of equity are going to start going down as the startup matures. Equity compensation is a type of non-cash pay that is offered to employees. Series A startup OpenComp has a similar product geared toward high-growth companies looking to improve their recruitment and retention, while similarly YC-backed Compound seeks to help tech. This is commonly used to design salary packages for employees in startups and tech companies. Think of equity compensation in terms of how much equity you'll need to offer to close a hire. Understanding a new job opportunity and. This is a non-cash compensation that gives you a part of the company's ownership. Minimize cash outflow. The amount of equity startups give advisors varies according to the advisor's expertise, role in the company, and the stage of the company. This should be the prevailing message around compensation. It is essentially a base pay that an employee receives depending on a pre-decided yearly, monthly, hourly, or weekly amount. An "equity clawback" is designed for early-stage startups to essentially reverse an equity grant based on a number of provisions. Equity compensation becomes part of the salary package. Think about salary and equity together Equity is only one part of an employee's compensation package. Please keep in mind the vesting periods and cliffs when talking about value. The other kind of equity compensation in a startup are performance shares. 1-3% of equity, with standard vesting. However, startup employees expect to receive other forms of compensationusually equity in the companywith the hope that these will make up for the lost wages in the long run. Attorney Mary Russell counsels individuals on startup equity, including founders on their personal interests and executives and key contributors on offer negotiation, compensation design and acquisition terms. You'll also have to decide how much to pay your early employees. The average founder/CEO holds roughly 14 percent equity at the company's IPO, while an outside CEO holds an . Startup CEOs have so much going on that they shouldn't burden themselves adjusting people's pay on an ongoing basis. Please see this FAQ about her services or contact her at (650) 326-3412 or at info@stockoptioncounsel.com. U.S.-based engineers: typically $125K-$160K, with a median of $150K. While it's easy to understand cash salary, the equity portion can be difficult to assess, particularly for someone new to tech or startups. The topic of compensation has historically been a delicate one that has left many people -- especially startup employees -- wondering just what drives what can feel like random decisions around pay and equity. It may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in. Employers typically reserve 13% to 20% of equity for their employee option pool. Equity is so dominant as the form of compensation that I don't see a reason to cover cash-based compensation. What is Equity Compensation in a Startup? The single most important thing any employee can do is add value to the company, which will add value to the equity. Filter by role, location, stage, startup size. The SPAC-acquired company must quickly learn how to function as a public company. But for start-ups and private companies, equity compensation represents potential profit should the company go . . An equity plan is a portion of your company that you plan to reserve for your employees. Last June, software engineers (and housemates) Miles Hobby and Geoffrey Tisserand set about trying to solve the problem for companies by developing a data-driven platform that aims to . The Point of Points. Getting another .1% can lead to a hell of a lot more money than another $10,000 of salary. Working for a startup almost always involves taking a salary cut, i.e. If Front sounds like a company you'd like to work at, check out our open roles! When you're joining a company that is already public (i.e., selling stocks on the market) this can sometimes mean an immediate increase to your assets. Payroll by job function Personal advisors may or may not get equity, but generally don't. Startups often expand compensation beyond salary and benefits to include some amount of equity. Startup advisor compensation is usually partly or entirely via equity. To help you gauge "market rate" for your equity compensation, there are some free benchmarking resources. The mean equity compensation across all tech startups across all maturities in all the markets was .072%. The equity is typically distributed among the early founders, financial supporters and sometimes employees who join the startup in its earliest stages. Search thousands of startup salary and equity data points. Negotiating Startup Employee Compensation Blog Stock Option Counsel Equity dilution simulator Enter the key terms for your SeedFAST Advance Subscription Agreement and understand how it will impact.. You and your co-founder have a startup with equally split ownership and an existing seed investment of 500k for 10 from a Seed investor . How it works The equity compensation would be 0.3%. Know your market value before you negotiate your startup offer. Startup financial advisor David Ehrenberg suggests that 5 to 10 percent is a fair equity stake for CEOs who join the company later. In most cases, employees know the exact amount of salary they will receive and . Equity compensation is the practice of granting partial ownership in a company in exchange for work. Keep in mind, after two rounds of funding with standard dilution, your Board members 1% ownership is likely to be closer to 0.50% or 50 basis points or BPS. Here again, a lot depends on where your company is in the funding stages. These are given only when special conditions are met. 2. This post is the first in a series to help startup employees understand compensation from Help Wanted Project we offer free salary and equity reviews. Shortly after incorporation when the value of your company is still low, you'll typically promise early employees a certain percentage of the company (e.g., 1%). Engineer compensation. For over 25 years, Roger has advised start-up and growing businesses in matters such as business formation . This allows various private and public companies to safeguard their cash flows and put them to use towards the company's growth. Equity compensation is a method of non-cash payment in exchange for services to a business. Based on my experience, most companies will offer you a fair wage and a fair equity package. 1. Most employees (OK, all of them) dread the idea of giving back their incentive stock options, and therefore, an Equity Clawback tends to be the most contentious provision of all. "The loss of compensation for the early employee as compared to market rate should be viewed as equivalent to the equity for that same dollar amount from an investor." Inputs: Employee's market salary (I used my current salary, plus bonuses) Salary offered by the startup (I used my offer, plus benefits like rent subsidy) Research by SaaStr backs up this suggestion.