We need to rethink employee compensation

Re:We need to rethink employee compensation by jmspring on Wednesday June 24, 2015 @07:08PM (#9775057)

Definitely not under 25. I've built startups for many people over the years (both as full time as a consultant/contractor), and at this point look at work on someone else's idea as dollars first, equity is gravy. Why? Early engineers take a hit on salary and any equity stake is quickly diluted. It is pretty common for engineers post series-A to potentially end up with a higher equity stake than someone that came in after seed funding when you factor in dilution. This is common.

These days I look at startups as an opportunity to have a significant impact, build something interesting, but what am I giving up for the particular company? Can I gain the same benefits through other channels?

I recall a YC event where companies were pitching looking for talent. At least the Justin.TV guy was honest and said "we work our asses off", the startup that pitched "we work together, we play together, and we hang out with our customers at 9pm trouble shooting" -- great if you just moved to the area and don't have other outlets.

I've had some grate discussions with a few YC companies recruiting, some were wrong fit, some wrong match, some wrong time. In general, positive.

But the original thread is right...for a lot of the talent some companies want, compensation needs to match the talent level desired and equity/option, that crap shoot needs revamping.

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Re:We need to rethink employee compensation by eastbayjake on Wednesday June 24, 2015 @07:18PM (#9775099)

Forgive my assumption. So when you're referring to equity in a company, you're talking about a founder-sized chunk of the company and not the 0.1-0.5% pittance that an engineer hired under a technical co-founder would receive? If so, that makes total sense -- and I think in both cases, whether 0.5% or 20%, it's best to view equity as gravy -- but 0.5% of a pre-Series A company should not be a reason to work 70 hour weeks for 12-36 months.

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Re:We need to rethink employee compensation by Akkuma on Wednesday June 24, 2015 @08:34PM (#9775325)

I just had an offer that had, depending on chosen comp .1% to .17% equity with a 10k loss in salary all for an extra .07%. By the way, they have a lot of convertible notes and are pre-series A. I turned around with a counter offer/request that pointed out the equity is largely worthless with no anti-dilution provisions, while seemingly gearing up for a heavy dilution.

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Re:We need to rethink employee compensation by ryan90 on Wednesday June 24, 2015 @10:38PM (#9775646)

Founders don't take dilution unless it makes each existing share more valuable. Unless it's a down round of course.

Dilution is life; just accept it. No employee or founder stock will ever have an anti-dilution provision.

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Re:We need to rethink employee compensation by Akkuma on Thursday June 25, 2015 @09:12AM (#9777597)

Maybe I don't properly understand equity, but if two founders each take 20%, an employee pool is created with 10%, the convertible notes eat another 20%, and the seed ate 20%, this leaves 10% of shares available. How are you only going to take dilution if it increases your employees existing share value if you need funding to survive and have very little shares to give up leading into a series A?

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Re:We need to rethink employee compensation by ryan90 on Thursday June 25, 2015 @09:35AM (#9777736)

You do not properly understand equity.

If I'm a founder and I own 100% then give up half the company to investors, that 50% I give up better improve my overall outcome by at least 2x. Usually that's reflected in the overall valuation.

http://paulgraham.com/equity.html

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Re:We need to rethink employee compensation by Akkuma on Thursday June 25, 2015 @02:18PM (#9779860)

Looking over PG's post it is about whether you should take equity and improving your outcome/valuation. Outcome seems vaguely defined and is used both as valuation and the chance of success. You as an employee want people to follow this as your own ownership drop isn't a big deal if your company becomes worth hundreds of millions through only favorable PG equation deals.

The chance of failure as a startup is significantly higher than its success. Plus, not everyone can achieve favorable offers that adhere to PG's equation. This is what real life is like, so you have to take into account unfavorable offers having to be accepted to possibly keep the lights on. Additionally, I threw up a quick scenario on http://www.tejusparikh.com/projects/equity_calculator/index....

I used a similar offer as mine, using .1% with rounds that had 1 million @ 1 million pre-money valuation, 5 million @ 15 million, 30 million @ 100 million and finally a sale of 200 million. The difference between 10k salary over 4 years in this scenario comes out to be a net gain of ~13k for an individual at the startup.

In my particular case if I switch this to a .17% offer and take a 10k salary cut, I am actually losing roughly 1k running through a scenario like that without factoring in the interest on 40k.

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Re:We need to rethink employee compensation by prewett on Thursday June 25, 2015 @01:11AM (#9776075)

I'm happy to accept dilution, and will dilute the value I consider the shares accordingly. Since there are plenty of ways to dilute out shareholders, I'll pretty much dilute the value of those shares down to slightly above $0.

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Re:We need to rethink employee compensation by s73v3r on Wednesday June 24, 2015 @11:44PM (#9775812)

Why? Why do we, arguably the part of the startup that is responsible for the valuation, have to accept that?

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Re:We need to rethink employee compensation by ryan90 on Thursday June 25, 2015 @09:38AM (#9777761)

What is better, owning 1% of a $1mm company or 0.5% of a $5mm company? That's why you shouldn't worry about dilution.

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Re:We need to rethink employee compensation by throwaway6497 on Thursday June 25, 2015 @05:13AM (#9776737)

The skeptic in me makes me think - because VC's set the rules mostly as they are the one who provide capital; They do wan't to make sure they get the most out of their investment with best possible terms.

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Re:We need to rethink employee compensation by xivzgrev on Thursday June 25, 2015 @12:38AM (#9775982)

I agree - salary is what you negotiate on and equity is gravy. I took my current offer because I was happy with salary. If equity never pans out oh well.

Also to everyone else if a founder wants to pay you a lot with equity, you have to wonder how confident he or she is in long term value. If they really are going to be worth so much, why aren't they clutching those shares more tightly and throwing cash at you instead?

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Re:We need to rethink employee compensation by jmspring on Wednesday June 24, 2015 @07:29PM (#9775141)

I mean you have to consider both cases.

If you are getting founders shares as a founding member of the team, that is one particular calculus that I alluded to but do not address.

If you are a "founding engineer" but not really getting founding shares, but the typical fraction to a couple of percent that is one thing.

If you are a non-founding C-Level title that is another scenario to discuss.

If you are an early engineer, that is basically the same as "founding engineer" above.

If you are getting non-founding equity as an early employee, you have to be aware of of dilution after each round. In nearly every case, an early employee post Series-A likely will be getting pay more and more equity than an early non-founding employee.

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