Written by: Jim Wrubel Published on: @August 10, 2021 Last updated: @August 10, 2021
Tools Used In This recipe
As an entrepreneur you'll likely need to hire your first few employees before you hire your first person in Human Resources/Talent, which means you'll likely be negotiating the offer letter directly. Information about salary ranges and typical equity levels for the role you're looking to add will help you build a competitive offer and make those first few hires. This information is also extremely useful when you're planning future fundraising; knowing the roles you want to add will help you determine the amount you need to raise and how much of your company's stock you'll want to allocate for an employee incentive plan.
Researching salary levels with Indeed and salary.com
Both Indeed's Salary Search and salary.com collect data from employers all over the world about their compensation for different positions. Both of them offer a search tool that you can use to find typical compensation ranges for specific job titles in a specific market. For the purpose of this recipe we're going to assume you've identified a need for a Director of Marketing.
How do I know what my first hire should be? The answer to this question depends on a lot of factors, including the skills of the founder(s) and other team members, so there's no easy answer here. In the early stages you're looking for someone who brings a set of skills and experience that's not already part of the team. So a good way to decide what type of role to add is to figure out what aspects of sales/marketing and product development aren't already on the team, and hire for what's missing. Also consider that functions like finance can be filled part-time until the company needs someone full-time.
Let's start with the Indeed salary guide. Right on the page you'll see a search field. Enter the job title in the What field and if you are looking for specific region, enter that in the Where field (use the nearest major city to ensure you get a broad range of data points).
On the results page you'll get an average base salary, as well as information on other benefits typically offered to the role. Below the average salary is the number of data points used. In the case of the screenshot below, the average is based on information provided by four companies so you should expect that it might not be as accurate as a position with more data points.
Let's compare this result with salary.com. Again, the site's home page has a search form available.
On salary.com a search for Director of Marketing requires you to select from a list of standardized job titles. In this recipe we'll select Marketing Director, but Digital Marketing Director is another job description that might have applied. The results are shown as a bell curve.
Note that unlike Indeed, salary.com's compensation estimates are drawn from national data and adjusted to reflect cost-of-living differences in the specific market. Salary.com also can show compensation ranges on base salary alone or base salary plus other benefits such as bonuses. For this particular role, the data from salary.com and Indeed vary considerably. Given Indeed's small sample size it's likely for this role that salary.com is more accurate.
Designing equity and incentive stock option packages for early-stage employees with the Holloway Guide
As an early-stage startup founder, it's likely that you won't be able to match salary levels of larger companies. But you have a recruiting and retention tool that those companies can't offer; the chance to share in the success of the company through equity and incentive stock option (ISO) compensation. But this benefit is not unlimited; your equity compensation pool is limited so you want to be sure your offers are in-line with market rates.
While there are far fewer data points available for equity compensation packages than for salary, the best source of information available is in the Holloway Guide to Equity Compensation. This content in the guide is crowdsourced and maintained by a group of attorneys and venture partners, so it's updated as market conditions change. The guide offers a limited preview with free registration, and you can purchase a copy if you are hiring quickly and need to reference it frequently.
To find a benchmark for equity compensation you'll need three pieces of information:
- The role for which you are hiring. The level of the role significantly affects typical equity levels. C-suite roles generally come with higher equity levels than VP or Director. The job function will also influence typical equity levels. Roles in product, especially software engineering (where incentive stock option packages are common at every seniority level), and early sales hires, will typically have higher equity compensation benchmarks than other types of roles.
- The employee's order of hire. Equity packages for the first few non-founder hires will be higher to reflect the risk that the candidate is taking on. At later stages you might even place the hire in a band, i.e. employees 20-50 each get the same equity compensation package.
- The company's traction and fundraising status. Very early stage equity packages will be higher, but a hire by a company that has raised a Series B round will be lower, even if the role is very senior.
The entire Holloway Guide is worth reading once straight through, but for this recipe we'll link directly to the section on typical employee equity levels:
Typical Employee Equity Levels - The Holloway Guide to Equity Compensation
Compensation data is highly situational. What an employee receives in equity, cash, and benefits depends on the role they're filling, the sector they work in, where they and the company are located, and the possible value that specific individual may bring to the company.
In addition to the benchmarks directly provided, this section of the Holloway Guide references the original articles and posts on which the Guide bases its information, so you can research further if you prefer.
As with every other salary and benefit, equity compensation discussions with a candidate are a negotiation. Use these guides as a starting point in that process. Feel free to refer candidates to the Holloway Guide using the link above as justification for your offer. Indicating that your offer is backed by research on typical equity compensation and sharing your source can sometimes help you bypass a lengthy sequence of counter-offers and help you build trust with the candidate by showing that you've done research to identify a total compensation package that is equitable and fair.