Employee remuneration, which is frequently organized differently than at a mature firm, is one of the most crucial elements you need to take into account if you’re pursuing and running a start-up business. The degree to which compensation, work-life balance, hazards, and possibilities are affected by a company’s stage of operation is largely dependent on that.
Salary, benefits, and equity are the three main components of compensation at a traditional startup company. Each has a different value depending on the stage of a company’s development, the role, and the prior work history of an individual. However, a solid generalization is that the earlier a firm is in its development, the lower the salary and perks will be, but the bigger the startup equity will be. As the company matures, the scales begin to shift in the opposite direction. In this startup compensation guide, we’ll go over each of these in greater detail.
What is startup compensation guide?
This startup compensation guide covers setting cash compensation, other benefits to consider adding, and determining the right level of equity for employees.
You have a lot of choices to make once you’ve decided to launch your business. You must create a business plan and carry out in-depth market research. To advance your business, you must appoint managers that are capable and trustworthy. Additionally, you must win over investors.
However, one of the most crucial choices you’ll have to make is regarding remuneration. Your pay plan will change depending on where you are in the startup process, which is crucial to your overall growth. After all, without the appropriate pay, your startup may join the 70% of businesses that fail within the first 20 months.
Why is compensation Important for Startups?
For normal startups, the journey from initial business idea to reality to liquidity is frequently lengthy. Your compensation plan will direct you through the early and later stages of your startup, assisting you in achieving both short-term and long-term objectives. Your compensation plan guarantees that your founders, leadership, investors, and advisers are in agreement with your business plan in addition to assisting with growth acceleration.
Additionally, compensation enables you to:
- Select a team that is entirely committed to your future opportunities.
- Select personnel who are driven to achieve their aims.
- Offer benefits other than cash pay to keep your organization competitive.
- Reward your staff for their effort and experience.
- Compete against larger companies with salaries that are comparable.
- Scale your business for long-term expansion.
Your compensation, however, is more than just determining monetary benefits; it is also about nurturing your startup for long-term growth.
A Guide to Startup Compensation
What options do you have for payment? Let’s look at a good startup compensation guide that can assist you in sustaining your company’s expansion.
As was already established, the stage of the firm, the position, and the employee’s prior experience all have a significant impact on salary. Here, one size does not fit all. Regardless of your prior expertise, you can almost likely anticipate a lower base wage with an earlier-stage startup than the industry average. As the business matures, all positions’ compensation begins to converge on market rates. If you’re unsure of what to anticipate, we suggest experimenting with the AngelList wages and equity tool, looking up individual company salary ranges on Glassdoor, or reading our booklet.
The stage also has a significant impact on benefits for startups. An early-stage startup is probably not the best place for you to work if good benefits are crucial to you. A startup’s employee benefits, however, frequently become an extension of its culture as it expands and are leveraged in all recruitment initiatives. Consider Airbnb, which provides all company employees with a $2,000 travel stipend. Pets may be allowed in the workplace, while other businesses may provide discounts for the gym and other amenities, catered lunches, generous vacation policies, and adaptable remote-working choices.
Equity: Stock and Vesting Schedules
Equity is frequently the most perplexing and intriguing component of a startup’s compensation package. Equity is the term for a company’s ownership, and if the business ever sells or goes public, this ownership stake could be very valuable (learn more about startup fundraising here).
It’s crucial to understand that no employee has ever been “granted” equity. Instead, they frequently get employee stock options, which give them the chance to invest in the business at a steeply discounted price. Additionally, you do not receive all of your stock options at once; rather, you accumulate them over the course of four years. The term “vesting timetable” is frequently used to describe that four-year period. According to the standard vesting schedule, you will receive one-fourth of your options at the conclusion of your first year and then one-quarter of an option every month following that. You have the right to exercise your options once they become exercisable (or not).
The quantity and price of stock options you earn depend significantly on how early you join a company. Early enrollment in a company is frequently rewarded with a greater variety of options at a significantly reduced cost. As the firm grows, you will normally obtain fewer stock options at a higher purchase price since the risk is reduced and its capacity to pay market-rate salaries increases.
The benefit of purchasing your options is that, one day, hopefully, the business will be sold or go public, and you will receive a sizable payout. For instance, early Instagram employees profited by an average of around $8 million from their stock options! There is also the well-known case of the Facebook muralist, who received compensation in the form of stock options that ultimately increased in value to over $200 million. These are obviously extreme examples, and many people don’t profit from stock options, but hazardous situations like these are a big part of what makes working for a company so thrilling.
How has blockchain changed startup compensation?
For companies or startups that are focusing on related-blockchain technologies like Metaverse, Web3, etc., employers can use cryptocurrency to attract and retain their employees instead of cash or equity.
Many tokens outperform equity awards in terms of liquidity. As long as there are no restrictions on the property and a marketplace with sufficient trading volume exists, the tokens can potentially be sold quickly in comparison to the potential long-term horizon for private company equity awards.
There are additional benefits for both the company and its employees. Giving tokens to a business does not dilute the company’s capitalization table. Furthermore, similar to stock options, companies can still impose a vesting period during which the employee is unable to access the tokens. And as cryptocurrency valuations rise, this may become a more compelling reason to stay.
All firms depend on their employees to function. They play a role in your company’s success or failure. You can determine how much you can spend on staff retention if you have a complete start compensation guide to work with. Of course, that comes after taking into account your financial situation. The pay, perks, or suitable equity are then up to you to decide. Employees of digital asset and blockchain companies may get compensation in tokens rather than other traditional benefits like cash or equity. Generally, to avoid your new business going bankrupt before it has a chance to take off, make sure to agree to a compensation plan.