5 ms·

I'm not sure if this is an appropriate question to ask, but you're the only one in the comments (so far) that say 1% is a reasonable number for the 1st employee

by NhanH 13y ago

I'm not sure if this is an appropriate question to ask, but you're the only one in the comments (so far) that say 1% is a reasonable number for the 1st employee. As someone who know nothing about the norm, do you mind explaining why it is so (or simply why 1% is not unreasonable would be great too!)? I saw an answer to a similar quora question here: http://qr.ae/I9ZWz http://qr.ae/I9ZWz . What do you think about the answer? Edit: I was once told that the rate for CEO hires is normally ~ 5%, with that number, it seems to me that employees, even the early one should be in the range of .1-.5% . Of course, it could just mean that even 5% for CEO is just too low?

tptacek 13y ago
Joel gives a better answer than I do; note that his plan gives 4 developers 2.5% of the company each, but 1%-5% seems like a typical range. The commenter says they were only able to improve their salary by ~20% by taking a BigCo job, so the rest of comp doesn't seem to be too far off the market. I don't think it's an amazing offer, but then, amazing offers can be red flags too. http://answers.onstartups.com/questions/6949/forming-a-new-software-startup-how-do-i-allocate-ownership-fairly http://answers.onstartups.com/questions/6949/forming-a-new-s...
- NhanH 13y ago
  Thanks, the answer is great. However, with that plan, wouldn't the first layer employee has ~ 100-200 times more equity than the last layer? Would this cause some sort of division within the employees in the company?
  - tptacek 13y ago
    Equity compensates risk. Earlier employees take more risk.
    - NhanH 13y ago
      But, exactly what is the risk that employees take (no sarcasm intended)? I mean, let's say an early employee takes 20% less salary than a later one for the first year or two. Additionally, take into account the fact that the company is more likely to fail at an earlier stage, and the earlier employee might need a couple of months to get a new job, I still can't see the risk of an earlier employee being a degree of magnitude higher than a later one. Again, thanks for your time in answering such silly questions. For a kid trying to figure out those things, I'm much appreciated that.
      - jplewicke 13y ago
        Part of it is that as the total value of the company rises as the company matures and it removes various sources of risk. The dollar value of 1% of the company could easily rise from $1 (idea on a napkin) to $2000 (early prototype in seed stage) to $250,000 (business model proven and many customers secured). As that happens, a smaller and smaller percentage of the company is required to make up a given disparity in cash compensation.

by NhanH 13y ago

tptacek 13y ago

Joel gives a better answer than I do; note that his plan gives 4 developers 2.5% of the company each, but 1%-5% seems like a typical range. The commenter says they were only able to improve their salary by ~20% by taking a BigCo job, so the rest of comp doesn't seem to be too far off the market. I don't think it's an amazing offer, but then, amazing offers can be red flags too. http://answers.onstartups.com/questions/6949/forming-a-new-software-startup-how-do-i-allocate-ownership-fairly http://answers.onstartups.com/questions/6949/forming-a-new-s...

NhanH 13y ago
Thanks, the answer is great. However, with that plan, wouldn't the first layer employee has ~ 100-200 times more equity than the last layer? Would this cause some sort of division within the employees in the company?
- tptacek 13y ago
  Equity compensates risk. Earlier employees take more risk.
  - NhanH 13y ago
    But, exactly what is the risk that employees take (no sarcasm intended)? I mean, let's say an early employee takes 20% less salary than a later one for the first year or two. Additionally, take into account the fact that the company is more likely to fail at an earlier stage, and the earlier employee might need a couple of months to get a new job, I still can't see the risk of an earlier employee being a degree of magnitude higher than a later one. Again, thanks for your time in answering such silly questions. For a kid trying to figure out those things, I'm much appreciated that.
    - jplewicke 13y ago
      Part of it is that as the total value of the company rises as the company matures and it removes various sources of risk. The dollar value of 1% of the company could easily rise from $1 (idea on a napkin) to $2000 (early prototype in seed stage) to $250,000 (business model proven and many customers secured). As that happens, a smaller and smaller percentage of the company is required to make up a given disparity in cash compensation.