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I agree with you that a well-funded company has no excuse for offering a below-market salary and make up the difference with equity. But for early stage startup

I agree with you that a well-funded company has no excuse for offering a below-market salary and make up the difference with equity. But for early stage startups that have no money, this is something that you don't have much control over. Back when our startup was like 2 people and barely ramen profitable, as much as we wanted to, there was no way we could pay market rate for some of our early hires without going out of business before we got any traction. Those hires made a risk vs. reward decision to take a temporary cut in salary in return for a larger amount of equity. Now that we are bigger and stabler, we have raised all their salaries to above market. Perhaps this is what you were saying as well, but I find that many people demonize any startup that offers below market salaries in return for higher equity. In many cases, it's not because they want to - it's because they have to.

dllthomas 13y ago
In principle, it seems like it would be nice to account for this as "we are paying you market rate, you are reinvesting some of that in exchange for equity". In practice, even leaving tax consequences out of it, that sounds like it might plausibly run you afoul of something... (though I am by no means confident that it would)
- nairteashop 13y ago
  > "we are paying you market rate, you are reinvesting some of that in exchange for equity" We didn't represent it like that at all. We were very upfront that we just don't have the money to pay them today what they expect, but we believe that this is a good market and we have the right team to become successful. Also that we understand that this is a huge risk they're taking, and so we will reward that with much higher equity. Some people were ok with it, some weren't and passed on our offer, and we fully respected that.
  - dllthomas 13y ago
    Sure, just saying there's a sense in which that's what's happening.
Jemaclus 13y ago
Sure, I think that's a fair assessment. I've just gotten a few offers where they offer SIGNIFICANTLY below market rate and offer a lot of equity, and when I counter, they get upset. That's frustrating. I'd happily take a pay cut to work for a startup that I believed in, but there is a lower limit that I can feasibly accept before I'm living paycheck to paycheck again, and that's just a miserable place to be, imo.
- nairteashop 13y ago
  Agreed. People have different appetite for risk and are at different stages in life, and it strikes me as very strange when folks - especially young, single founders with few living expenses - get upset when someone negotiates for higher compensation.
  - CodeMage 13y ago
    it strikes me as very strange when folks - especially young, single founders with few living expenses - get upset when someone negotiates for higher compensation. It shouldn't strike you as strange. You're expecting those young, single founders with few living expenses to empathize with people who aren't in their situation. What experience have they had that would allow them to do so?
- judk 13y ago
  Any one who gets upset during salary negotiation is either trying to scam you or not emotionally mature enough to run a business. Either way, walk away.
  - Jemaclus 13y ago
    Agreed. That's exactly what I did. :)
stephencanon 13y ago
I think the real issue is that the “larger amount of equity” needs to be significantly larger than it usually is in practice in order to justify the below-market salary for a strong hire. (Not saying that you guys didn’t offer people enough equity, rather that I’ve seen many stories of startups not offering nearly enough to justify the risk and below-market salary.)
- Jemaclus 13y ago
  Agreed! The other thing to consider here is that for a lot of people in the startup world, we already have equity. I already have equity in my current company. And not only that, but my current equity has started to vest! I'm actively making money from my equity right now. If you offer me X equity that's (theoretically) worth slightly more than my current equity but doesn't pay out for a year, you need to do something to incentivize me to give up my remaining, currently vesting equity to join your company. I.e., if my current salary is 100K and I have 50K in equity vesting between now and next November, and you offer me 90K and 250K in total equity, then I have to decide whether it's worth taking a 10K salary cut AND giving up 50K over the next year. The fact that you're offering me 250K in equity is actually going to wind up being equal to what I'm making now (250K - 50K = 200K, 200K / 4 = 50K/year), and the salary is actually lower! It's a net loss for me! So unless I really believe in your company and I really want to leave my current job, it's just probably not enough. And it's your job to either convince me that it's worth the loss or offer me more. And that's assuming your equity is actually worth anything. Given the number of startups that fail, it's a huge risk to take for something that's only theoretically equal to what I currently actually earn. So like I said, equity should be a bonus, not a replacement for salary. But to be fair, like nairteashop said, some people have different appetite for risk and are at different stages in life, so maybe the excitement of moving to a new company is enough to justify that. Anyway, I agree. You either need to beat my salary or beat the equity, but you can't offer me a lower salary and then offer equity and call it comparable, because you're not only offering me something, but you're asking me to give up stuff I already earned. You're asking me to walk away from free money. It's your job to convince me to do that, not to tell me I'm a moron for doing something completely logical.
  - 13y ago

dllthomas 13y ago

In principle, it seems like it would be nice to account for this as "we are paying you market rate, you are reinvesting some of that in exchange for equity". In practice, even leaving tax consequences out of it, that sounds like it might plausibly run you afoul of something... (though I am by no means confident that it would)

nairteashop 13y ago
> "we are paying you market rate, you are reinvesting some of that in exchange for equity" We didn't represent it like that at all. We were very upfront that we just don't have the money to pay them today what they expect, but we believe that this is a good market and we have the right team to become successful. Also that we understand that this is a huge risk they're taking, and so we will reward that with much higher equity. Some people were ok with it, some weren't and passed on our offer, and we fully respected that.
- dllthomas 13y ago
  Sure, just saying there's a sense in which that's what's happening.

Jemaclus 13y ago

Sure, I think that's a fair assessment. I've just gotten a few offers where they offer SIGNIFICANTLY below market rate and offer a lot of equity, and when I counter, they get upset. That's frustrating. I'd happily take a pay cut to work for a startup that I believed in, but there is a lower limit that I can feasibly accept before I'm living paycheck to paycheck again, and that's just a miserable place to be, imo.

nairteashop 13y ago
Agreed. People have different appetite for risk and are at different stages in life, and it strikes me as very strange when folks - especially young, single founders with few living expenses - get upset when someone negotiates for higher compensation.
- CodeMage 13y ago
  it strikes me as very strange when folks - especially young, single founders with few living expenses - get upset when someone negotiates for higher compensation. It shouldn't strike you as strange. You're expecting those young, single founders with few living expenses to empathize with people who aren't in their situation. What experience have they had that would allow them to do so?
judk 13y ago
Any one who gets upset during salary negotiation is either trying to scam you or not emotionally mature enough to run a business. Either way, walk away.
- Jemaclus 13y ago
  Agreed. That's exactly what I did. :)

stephencanon 13y ago

I think the real issue is that the “larger amount of equity” needs to be significantly larger than it usually is in practice in order to justify the below-market salary for a strong hire. (Not saying that you guys didn’t offer people enough equity, rather that I’ve seen many stories of startups not offering nearly enough to justify the risk and below-market salary.)

Jemaclus 13y ago
Agreed! The other thing to consider here is that for a lot of people in the startup world, we already have equity. I already have equity in my current company. And not only that, but my current equity has started to vest! I'm actively making money from my equity right now. If you offer me X equity that's (theoretically) worth slightly more than my current equity but doesn't pay out for a year, you need to do something to incentivize me to give up my remaining, currently vesting equity to join your company. I.e., if my current salary is 100K and I have 50K in equity vesting between now and next November, and you offer me 90K and 250K in total equity, then I have to decide whether it's worth taking a 10K salary cut AND giving up 50K over the next year. The fact that you're offering me 250K in equity is actually going to wind up being equal to what I'm making now (250K - 50K = 200K, 200K / 4 = 50K/year), and the salary is actually lower! It's a net loss for me! So unless I really believe in your company and I really want to leave my current job, it's just probably not enough. And it's your job to either convince me that it's worth the loss or offer me more. And that's assuming your equity is actually worth anything. Given the number of startups that fail, it's a huge risk to take for something that's only theoretically equal to what I currently actually earn. So like I said, equity should be a bonus, not a replacement for salary. But to be fair, like nairteashop said, some people have different appetite for risk and are at different stages in life, so maybe the excitement of moving to a new company is enough to justify that. Anyway, I agree. You either need to beat my salary or beat the equity, but you can't offer me a lower salary and then offer equity and call it comparable, because you're not only offering me something, but you're asking me to give up stuff I already earned. You're asking me to walk away from free money. It's your job to convince me to do that, not to tell me I'm a moron for doing something completely logical.
- 13y ago