Joining a startup within its first year - salary/equity expectations?


10

I've recently been headhunted by a startup a year old which I am very interested in leaving my current position in a large established business in the same industry for.

There are a number of people doing freelance work for the company (as part of the business model) but I would be the 8th salaried member of staff. They have started quite promisingly and my exact role is yet to be defined - I've been recommended by a few people there who have worked with me previously and they've asked if I would be interested in joining.

My current salary is reasonable for my level, and i'm expecting to have to take a pay cut to join - however I was wondering if anyone could give me some advice on what is a reasonable expectation in terms of gaining equity/typical start up salaries vs the market?

In order to move from my current position where I have decent career prospects I'd like to see the reward for the risk, but have no idea what is reasonable in these circumstances. I know it'll vary on lots of factors but how do i approach it?

Thanks for your advice.

Hiring Equity Salary

asked Dec 25 '11 at 08:39
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Scotland
51 points
  • Great question. Can you be more specific as to what position and salary range you are seeking. I was wondering the same thing and was about to ask a similar question. – Joe A 7 years ago
  • Sure - the position I'm seeking is likely to be something akin to an operational head, defining and streamlining the operational strategy and getting my hands dirty in the meantime. Given the age of the business I'm sure they'll be a wide range of hats to wear though, with a significant degree of cross-selling. The market valued salary of my position (in digital advertising) is approx. £40k ($60k), however I'd be willing to halve this should there be the payoff to the effective investment if the business succeeds long-term. – Scotland 7 years ago

6 Answers


4

It seems that your job belongs to EU. In India (typically in Bangalore), if someone is looking for a start-up company, the company always pays higher then your current salary. Sometimes it's significantly higher.

Because a good startup would never want to compromise on quality of initial employees. Very good employees can be hired only with very good wages. I would not recommend that you join a startup, as an employee, by taking a pay cut (assuming that a person is not born with silver spoon).

Every company starts up with good prospects in mind. Don't get carried away with that. From my company itself few people stared up on their own and after several months they returned back. I am not discouraging, but you should think in all lines.

For sake of asking, ask them to pay a 5-10% hike and also ask for good amount of shares/stocks. See what they respond. And based on that, you should decide based on your gut feeling. All the best.

answered Dec 27 '11 at 15:13
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Iammilind
182 points

3

Is this company with 8 employees (+ founders?) viable if at this point they still can't afford to pay market rates? If everyone is taking a huge pay cut, what is their margin, can they even operate without everyone volunteering to essentially give the company the difference between market rate+ and their current salary.

Risk vs. reward... why are you leaving an established secure position in order to receive much less benefit? Money isn't everything, but it is certainly something. By taking a salary that is 50% of the market rate you are in effect giving this company 50% of your salary. What does margin look like when you take into account actual market rate for salaries.

Any company can succeed if they have no costs.

Do not go to a company as employee number 8 that cannot afford to pay you the market rate for your services.

answered Dec 29 '11 at 04:55
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Umassthrower
458 points

2

If by employee 8 they aren't paying market rate then either the company is struggling or they don't believe in paying their employees a fair wage. Either way I'm not sure if you should get involved.

Ask for market rate, if they aren't prepared to give it then run.

As for shares, that depends how much they value your contribution. It's going to be of the order of a fraction of a percent. It's significant but not worth sacrificing your salary for. Bear in mind you will have lower job security in a new company.

answered Dec 27 '11 at 21:25
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Tom Squires
1,047 points

2

Do not go to a company as employee number 8 that cannot afford to pay you the market rate for your services.

I don't really buy that. Is it realistic to believe that a startup that is employing its eighth person has got over the initial pain of being a startup and is able sustain its growth whilst still paying market rates? I doubt it. Joining a startup has its risks - the uncertainty of where it will end up even in the short/medium term, probably lower pay, slim benefits... etc. The upside though is the greater chance for a bigger reward if the company does succeed. And you get to be an influential part of that success.

Speaking for myself, as an 'employee no. 7' that was paid under market rates at a loss-making startup - all those risks were there but as the years went on the risks dissolved and the upside kicked in.

At this stage in a startup giving out share options is a cheap way of making up for the reduced salary (and the share options is the bulk of the upside if successful). If you can live on that reduced salary then I wouldn't let the salary question get in your way of judging whether it is a company you want to work for.

What you want to be asking yourself is are the founders passionate, do they walk through walls to get stuff done, are they great visionaries and do you believe the company can do it? Succeed or fail one thing is for certain - you'll learn a massive amount if you dive into a young startup.

answered Dec 30 '11 at 21:23
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Edralph
2,333 points
  • Who cares. Why should employee nr 8 take a cut wihtout a big reward possibility? Better run ;) – Net Tecture 7 years ago
  • It's been a year and a half since I wrote that sentence and at this point I'd probably agree with something between my answer and yours. I would change my statement to say that you shouldn't go to any company at any point if they aren't compensating you to the level necessary for your services, but that salary and equity need to be considered together when you are looking at your compensation. A $1 salary might be fair if you are getting a big equity stake in a company with a high probability of success. – Umassthrower 6 years ago

0

I really don't think that you should expect to have to take a 50% pay cut if you would be full time employee #8. I would assume that if they have already hired seven employees (in addition to the freelancers) that they should be in a position to pay you a reasonable wage, not full market, but reasonable. Then again, this doesn't apply if the company consists of a handful of slave drivers.

Typically, startups will allocate anywhere between 10-20% equity for employees outside the founders. For simplicity's sake, let's assume that the company set aside 10% of the company for the first couple years worth of employees. Take a fraction of that, on the top-top-top end, I would say you are looking at 1% which you would vest/ earn over 3-4 years.

Figure out what would be most comfortable to you and work with them on a sliding scale:

  • X% equity & market salary
  • Y% & 75% market salary
  • Z% & 50% market salary

X being on the low end of the equity spectrum and Z being on the high end.

Good luck, I hope this provides you a little help.

answered Dec 26 '11 at 08:47
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Masonhensley
1 point
  • 1% for 8th employee is way too optimistic. That level of equity (for non-executive employees) is given to the first/second non-founding employee, and even then if you're lucky. Consider that out of 10-20% pool for employees has to potentially scale to hundreds of future employees. This pool is fixed, a company can't spend it all on first 10 employees. – Krzysztof Kowalczyk 7 years ago
  • That's why I said top-top-top end. It was hard for me to gauge the kind of value the company is putting on the OP from what I read. If he is going to be a big deal to the company's future, then it is in the realm of possibilities. – Masonhensley 7 years ago

0

I believe you can either be employee or partner:

  • A partner has a significant part of the company and real control over what the company does, it’s also impossible or expensive to remove a partner from the company – when you are a partner if the company is moderately successful you have a high paying job for life and if the company is very successful you can retire to your own tropical island. Partners are expected to take risks for the company, including working for well below market rate in the early days.
  • An employee has no significant ownership and has no control over the company and he/she can be fired at any time, when you are an employee if the company is moderately successful you don’t have to fear layoffs and if the company is very successful you maybe get a nice bonus. Employees should not take personal risks for the company (because they will not be the ones getting their own tropical island if the risks pay off) - this includes not working for below market value. Stock options at a startups are worth on average absolutely nothing – for the stock options to be worth money the company has to be successful, have an IPO and still be successful and keep the stock price up for a year or two after the IPO – the chances of a company getting there are extremely small, most companies, even most successful and highly profitable companies never make it.

You have to know if you are a partner or an employee, if you are a partner you should be compensated like one (significant ownership in company) and if you are an employee you shouldn’t take personal risks (that is, you should be paid fair market value).

answered Jan 10 '12 at 20:12
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Nir
1,569 points

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