A baseline would be making up for the employee's salary reduction with equity. If you're taking VC money then you have some dollar value per share to work from,

A baseline would be making up for the employee's salary reduction with equity. If you're taking VC money then you have some dollar value per share to work from, otherwise base it on 3-5x annual revenue linearly projected from historical monthly revenue. Formula: (Fair total dollar compensation - agreed salary) / (dollars / share) * 4 yr vesting A sliding scale for salary : equity is built in and you can compensate based on hire desirability or local market conditions by weighting dollars per share appropriately. This system is fair as long as both the employer and employee agree upon the share value (some information asymmetry there benefiting employers that decent companies will try to correct for). Saying this as startup first engineer ;)