Startup Compensation Guide
Embarking on an entrepreneurial journey can be an exciting and demanding task. It requires a great deal of commitment, perseverance, and of course, know-how.
We talk about the brains behind the business and the shareholders with startups. If some industry leaders contributed to the company’s success, startup advisor equity becomes relevant too. But as back-breaking as running a business is for the owner, it's also taxing on the employee.
It's pretty risky for employees to join startup companies. It doesn’t help that almost 70% of American businesses fail within the first year of operation. If you’re looking to hire employees for your startup business, now is the right time to discuss the compensation package.
With that said, what is a startup compensation guide? That's a guide that addresses three main aspects of your employee’s compensation: salary, benefits, and equity. How much compensation you'll give employees will depend on their role and experience as well as your company’s life stage.
As you may not have the funds to offer competitive salaries early on, negotiating equity in a startup can be a great way to attract top talent to your team, along with a startup business advisor.
Negotiating Salaries
The sooner you realize that your employees are a vital asset to the growth of your business, the better. When someone decides to join your vision to grow your dream company, you should reward them as best as you can. That's because joining startups is a huge risk that may very well compromise your employees’ financial and job security if things go south.
The first thing you need to consider is the salary. How much you pay an employee will depend on if they are a full-time employee or not. As you can imagine, full-time employees are more costly to bring on board. They need a basic salary that you can pay depending on your company stage and role.
If your business is still in the beginning stages, the base salary can be lower. You can always raise the amount as your company matures to give your employees more competitive rates.
After a base wage, full-time workers also need allowances, incentives, and health care. If your cash flow can't provide competitive packages, you can offer equity instead. That way, everyone stands to enjoy the success of the company.
Freelancers and part-time employees usually have other commitments. Thus, they don’t expect comparable compensation. You can also decide to pay them pro-rata and give extra incentives — or not. It’s up to you. But since you pay them less than full-time employees and considering their other commitments, they may not focus on your business.
Negotiating Benefits
As highlighted before, the issue of benefits should be part of the compensation guide. That's especially true if you're dealing with management-level employees. It would be best if you had special consideration for those you expect to drive your company vision.
The benefits you give your employees will also depend on your business finances and company stage. It's understandable if you can't splurge on benefits while your company is still in its early stages. But as your company grows, you can add benefits as a way of extending your corporate culture and negotiating employee buy-in into your vision.
Benefits come in all forms. You need to decide on the benefits that align with your organizational values and culture. Travel stipends, catered lunches, gym discounts, and flexible working options are just some of the benefits you can throw into the mix.
Negotiating Equity
The word equity usually throws business owners into a frenzy. It is understandable, given the fact that you're giving away a share of your business. But we'll quickly clarify that employees are seldom "given" shares in a company.
Instead, you can allow them to buy equity into your company with stock options. In this case, you give your employees the chance to purchase equity at heavily discounted prices.
You don't have to give your employees the stock options upfront. Instead, you can choose to increase the number of stock options over a specific period. The benefit of stock options to employees is that if you decide to sell your company in the future or go public, they could receive a big payout.
Final Thoughts
Employees are the driving force behind any business. They contribute to the success or failure of your business. Having a thorough compensation guide to work with as a startup will help you learn how much you can spend to keep employees. That's, of course, after taking into consideration your financial position. You can then decide on the salary, benefits, or appropriate equity. Just be sure to agree to a compensation plan that won't bankrupt your new company before it has a chance to take off.