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What would you offer in terms of salary/equity for your first few hires?

I'm building a new company and trying to find like-minded employees who can help run the operation. What would be an acceptable salary and equity offering to a new employee?

5 Replies

George Lambert
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0
George Lambert Advisor
Interim CTO - CTO's for Hire
In terms of Salary I would recommend a review of "Inequality at Work: The Effect of Peer Salaries on Job Satisfaction" - . A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of University employees. All employees were then surveyed about their job satisfaction and job search intentions. We find an asymmetric response to the information about peer salaries: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Those negative treatment effects are concentrated among employees in the first quartile of each pay unit. Differences in pay rank matter more than differences in pay levels. Our findings suggest that job satisfaction depends on relative pay comparisons, and that this relationship is non-linear.
http://www.princeton.edu/~amas/papers/card-mas-moretti-saezAER11ucpay

On the topic of equity, it always get sticky early on. So create a pool over time from which you can reward participants on a quarterly basis for their contribution rather than giving away equity away to new employees. Set up an equity sharing pool to be allocated based on participation every quarter where the allocations on a per quarter basis are the same for each quarter allowing for early employees acquire to acquire more at a rapid rate when they make a larger contribution. Total dilution of the equity pool will not have to be discussed with each employee. Re-Negociating Employee equity percentages is inevitable if you grow, expand, and take on partnerships for funding. This pool protects the entire employee at a constant dilution rate . The "total pool" may have to get diluted, but there is no "per employee" discussion about how much they are being diluted and why, and if you refer to the salary discussion at the top of the article job satisfaction goes up with employees feel rewarded, not by the size of the reward as much as the relative rewards.


Joe Emison
0
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Joe Emison Advisor
Chief Information Officer at Xceligent
What are they doing? There isn't one blanket response for all of the different roles into which you're going to hire.
Michael Heflin
1
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Michael Heflin Advisor
CEO at Sensuron, LLC.
You have received both good questions and advice above. As an LLC we have created a no voting pool to draw all non-founder equity called Pool Units. However, remember you have a long road ahead and only only 100 percentage points to give away, compounded by future investment dilution. The impact of future dilution can be emotionally impacting to those will the small percentages. Treasure your people while keeping in mind there are far more coming to be treasured.

Regarding salary, I typically offer the best I can to meet my financial objectives. I tend to pay on the higher end of my range for individuals who will receive less equity and are in the doer rather than the managing role. This is not simply a counter balance equation. And for all they attach to our vision with passion or they never get hired.

For those receiving below market wages, we have a open discussion at the beginning of employment to help these early team member fully think though the financial implications. I ask them to have the discussion with their family if they have one. We set an expectation of the number of years we intend to exist at this compensation level and when we may be able to adjust to market. This build a unified picture of our key divers for both business and personal objectives.
David Schwartz
2
0
David Schwartz Entrepreneur • Advisor
Multi-Platform (Desktop+Mobile) Rapid Prototyping + Dev, Tool Dev
Read Slicing Pie for an excellent approach to this issue.
Piyush Joshi
0
0
Piyush Joshi Advisor
Co-Founder, Director at Orthocrafts Innovations Pvt Ltd
Dear Cody,
Based on the skill sets of people you can select them for different role. However aligning their interest with interest of your company is essential. There is no set formula for salary and equity, however you can have base payment equivalent to 40% of avg market rate and rest can be linked to revenue stream as performance bonus.
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