In the early, pre-funded days of a startup, founders often do all the work without explicit compensation. Once they raise some funding, and need to bring on new team members, they will need to figure out how to pay them.
There are two parts to a compensation package: Cash and stock (usually in the form of stock options) Generally, it is a good idea to figure out what is the fair market value for an employee and try to pay them market rates.
Stock options are confusing for founders and employees, especially those new to the startup space. Joshua Reeves, the CEO of Gusto the payroll company, has put together a fantastic guide to equity for employees. This is also useful for founders who are thinking through their option plan.
Here are some benchmarks for cash and equity compensation for your reference.
- In the spirit of radical transparency, Bufferapp publishes the formula they use to calculate pay - and list the actual amounts for key employees.
- How JoelOnSoftware of FogBugz thinks about compensation (including Profit Sharing).
- BufferApp also shares their formula for granting employee stock options.
- For senior executives, Ernst and Young publishes an annual executive compensation study. The 2013 basic results may be found here. The up to date basic version may be downloaded here, or you can purchase the full version.
- Ackwire has a table of self-reported stock percentages for startup employees.
- Robert Half, a recruitment agency based in Las Vegas, has published a 2016 salary guide for technology professionals - this is more appropriate for well funded startups at or beyond the A-round stage.