Any insights on fair compensation for a startup's first few employees?

2 pointsncash15y ago1 comments

I'm happy to say that my startup is hiring its first few employees. Like most startups, we don't have a lot of cash, so we are planning to go with a low salary + stock/ownership deal.

As a first time entrepreneur, and young person in general, I have no experience with stock options or creating an options pool. I have no idea what size they should be, what terms (vesting, etc?) we should put in place, and things of that nature. I do receive fantastic business counsel, and I know where they stand on the issue. However, I live in the Midwest and people here tend to be pretty conventional and conservative. Thus, I'm here to gather feedback and conventional wisdom of how this is handled elsewhere. I'd also be interested to hear about other things you have offered/received as an entrepreneur/early employee, and any pitfalls you'd recommend we look out for.

A little more info: My company was formed as an LLC. I am the single member with 100% ownership. Like any founder I don't want to give away the farm, but I'm more interested in getting this done right than the amount of equity I retain. Right now we are looking to hire two people, though more will follow. The jobs we are hiring for are sys admin and operations related, but the people we plan to hire are avid hackers and will work on whatever needs to be done.

Note: I am aware that each business is different and I'll need to consult a lawyer. I'm looking for more specific advice than that :)

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DavidAdams15y ago

Do a little bit of research into stock options vs restricted stock. And in the early days, while you're an LLC, your new colleagues might be willing to just have a promise of a certain amount of equity to be granted to them included in an employment contract, which will save you a bunch of legal fees up front, and will prevent you from having to include them as partners in your LLC, with all the extra hassle that would entail.

But make sure you put some restrictions or a vesting schedule on what you give out. It's customary for someone to have to work at least a year before they get any of their equity. You want to avoid having ex-employees/ex-partners owning equity in an early stage startup.