Determining an employee's salary and equity stake is a decision that can be crucial to the employee's retention and to the company's financial condition. An employee's equity vesting schedule is also a sensitive matter as it can effectively bind an employee to a company for several years. This section covers these matters, and related topics such as raises and the broader purpose of compensation.
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Every team member of AngelList is on a 6-year vesting schedule. Including the founders. Why? Because it takes a long time to build something important. And we want everyone to stick around for a long time. Because we want people who are here for the mission, not a payday. Because it sells prospective hires: the team you’re joining isn’t going anywhere.
The startup world is full of companies where the cash compensation levels are lower than market. This results from the view that the big equity grants people get when they join more than makes up for it. There are a few problems with this point of view. First, the big option grants are usually limited to the first five or ten employees and the big management positions. And second, people can't use options to pay their rent/mortgage, send their kids to school, and go on a summer vacation with the family. Figure out what "market salaries" are for all the positions in your company and always be sure you are paying "market" or ideally above market for your employees. And review your team's compensation regularly and give out raises regularly. This stuff matters a lot. Most everyone is financially motivated at some level and if you don't show an interest in your team's compensation, they won't share an interest in yours (which is tied to the success of your company).
The first MBA Mondays Live class was last monday night. I had an incredible time and I can't wait to do it again. There isn't much better in life than standing up in front a bunch of eager learners teaching something you know well. Here's the video of the entire class.
Is it fair for founders to own about 100% of a startup while employee #1 only owns a few percent? Are founders 10-1000x more valuable than employees? The answers are: (1) Yes, it is fair. (2) Value doesn’t matter, timing does.