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Automate your cap table and equity process (for free!) with Carta Launch | carta.com/launch
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One of the most common challenges that you’ll face as a startup founder is growing your team, from sizing the employee option pool (ESOP) to sourcing the right talent, all the way through writing an attractive offer letter. At the end of the day, there are two essential questions that every founder needs to answer:
1. How do I find great candidates?
2. When I find them, how much should I pay them?
Failing to answer either of these questions can have real consequences on your company’s growth trajectory. That’s why it’s never too early to think about your compensation strategy-the philosophy, design, and architecture that defines how your company pays people.
In the video above, we partnered with Luke Beseda, Talent Partner at Lightspeed Venture Partners, to learn everything founders need to know about building an effective compensation strategy.
In the video, you’ll learn:
PREPARATION AND RESOURCE PLANNING
How should you think about budgeting for new hires? You’ll need to strike the right balance between cash compensation and equity, which can vary based on the stage of your company.
Key takeaways
• It’s common for your first core hires to ask for 1% of the company or more.
• For this reason, it’s important to allocate the right amount of equity for your employee option pool.
• Most founders use industry survey data to learn how much different roles get paid.
• In the early stage, you’ll often need to offer less cash than your peers (40-50th percentile).
• This means you’ll likely need to offer more equity than your peers (70th-90th percentile).
• Cash and equity tend to change over time. Be ready to adjust your strategy as you mature.
ARCHITECTURE AND PHILOSOPHY
When you hire new employees, how should you think about leveling them? You’ll need to define your philosophy around the responsibilities of each role, and build a compensation architecture that maps out how each role gets paid.
Key takeaways
• If you’re an early-stage company, you’ll want to create a leveling system that’s simple and scalable.
• Later-stage companies tend to have between six to eight levels. This is overkill for early-stage companies.
• Typically, companies create unique levels for both leadership roles and individual contributors.
• These levels start simple, and become more complex as you grow.
SELLING THE DREAM TO CANDIDATES
When you’re recruiting employees for your team, how should you think about incentivizing them? Joining a startup is risky for any employee, so you’ll need to create an attractive value framework to show them why the risk is worthwhile.
Key takeaways
• Pick three scenarios that your company could potentially reach in the future-a low, medium, and “best case.”
• If you can, pick comparable companies in your industry, and tie your potential trajectory to theirs.
• Don’t deliver offers in writing, or over the phone. Do it face-to-face.
Here at Carta, our Total Compensation tool uses real-time industry data to automate each of these complex processes.
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DISCLOSURE: This communication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This communication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.
00:00 Introduction
00:18 Compensation strategy overview
01:05 Preparation & budgeting
02:25 Using survey data
03:33 Cash vs. equity
04:16 Compensation architecture & philosophy
04:41 Leveling
07:10 Location strategy
07:30 Selling the dream to candidates
08:03 Using value frameworks
10:20 How to make an offer
7 авг 2024
