What Should Your Startup Equity Compensation Policy Be

Founders - what will your equity comp policy be?

Will your company always compensate at the 50th percentile of the band? Will you go above that for specific key hires? Or maybe whole functions like Engineering will start at the 75th percentile?

Setting this sort of compensation philosophy can seem a bit much at the earliest stages. And I sort of agree - you shouldn't just be taking the general guideline for hires 1, 2, or 3. Those negotiations are much more art than science.

But pretty quickly, you get into the land of comp bands. From the data below, your choice of compensation philosophy can have major impacts on your equity offers and your option pool size.

If founders gave each of the first 5 hires the 50th pct equity grant (based on more than 8,000 equity grants over the past year on Carta), they would part with 3.62% of the company in total.

If you continue down the 50th pct column to employee 10, that's 4.75% of the company all in.

Is that...good? bad? Too much or too little? Really hard to say!

If instead you are generous with early employee equity, you'll need a bigger pool pretty quickly. Everyone receiving a 75th pct grant in the first 10 employees totals 11.61% of the company. That's already higher than the usual 10% option pool for pre-seed startups (although you probably won't be hiring 10 people before you raise funding).

Hopefully this sort of benchmark layout gives you a sense of the landscape for early employee equity. There is no "right" way to build your initial team and keep them incentivized.

However, it has been pretty cool to watch the 50th pct equity grant creep upwards over the past few years. Smaller teams with slightly larger equity grants per team member has become the new default in building startups and I'm here for it.

Hope you close your first hires this weekend!

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