Summary of "How much salary and equity to offer your first employees | TechCrunch Disrupt 2025"

Summary: How Much Salary and Equity to Offer Your First Employees | TechCrunch Disrupt 2025

This panel discussion focuses on how early-stage startups should structure salary and equity compensation packages to attract and retain top talent, especially given the competitive landscape shaped by large tech firms and the evolving AI talent market.

Key Frameworks, Processes, and Playbooks

Equity Setup Framework

Establish an Employee Stock Option Pool (ESOP) early (typically 10-20% of company equity).
Obtain a 409A valuation to set a compliant strike price for stock options.
Decide on offering restricted stock vs. stock options; most startups use options.
Consider early exercise and 83(b) election for tax benefits for key hires.
Plan for refresh grants at each funding round to retain and motivate employees.
Use vesting schedules with a standard 4-year vest and 1-year cliff; consider creative vesting (e.g., backweighted vesting) for key hires.

Compensation Strategy

Pay cash at ~50th percentile market rate and equity at ~90th percentile to stay competitive.
Be more generous on equity than initially expected to incentivize early employees.
Align compensation packages with candidate motivations (e.g., cash vs. equity preference).
Use clear goals and accountability frameworks (e.g., OKRs) tied to equity grants.
Manage dilution carefully: dilution concerns are more about investor dilution than employee grants.
Maintain pay equity and fairness to comply with laws like California’s Equal Pay Act (equity included).

Negotiation and Hiring

Understand candidate’s personal financial situation and risk tolerance early in the recruiting process.
Offer alternative packages (higher salary/lower equity or vice versa) based on candidate preference.
Avoid last-minute surprises; negotiate compensation transparently and early.
Be mindful of pay disparity risks due to negotiation differences, especially gender gaps.

Geographic Compensation Strategy

Consider a single, consistent compensation framework rather than hyper-localized pay scales.
Benchmark primarily against San Francisco and New York markets, with some adjustment for other locations.
Consider flexibility and remote work benefits as part of total compensation.
Avoid over-optimizing compensation by geography to maintain trust and fairness.

Equity in Acquisitions and Early Exits

Recent trends in aqua hires and early acquisitions (e.g., Cognition, Windsurf) affect employee expectations on equity payout.
Founders should communicate clearly about acquisition scenarios and equity implications.
Consider single-trigger acceleration for line employees to protect equity vesting in acquisitions.
Employees should bet on the founders and company mission as much as on equity upside.

Legal and Operational Best Practices

Avoid legal tech debt by consulting experienced startup lawyers early.
Use lawyers or legal platforms to set up compliant equity plans.
Take advantage of VC platform resources for legal and compensation guidance.
Address ownership vs. control (voting rights, board structure) strategically, not just equity percentages.
Model dilution carefully through funding rounds to maintain founder motivation and control.

Key Metrics, Ranges, and Targets

Equity Pool Size: 10-20% of company equity reserved for employees.
Founders’ Initial Equity: Typically 80-90% of the initial cap table (e.g., 8-9 million shares out of 10 million total).
Early Engineering Hires: Aggregate data suggests first 10 hires may collectively get ~10% of company equity, with individual grants ranging from ~1% to 4% depending on role and timing.
Vesting Schedule: Standard 4 years with 1-year cliff; longer vesting uncommon and may reduce candidate interest.
Compensation Percentiles: Cash at 50th percentile, equity at 90th percentile (example from Pulley).
Dilution Awareness: Founders should plan for dilution across seed, Series A, B, C rounds and maintain sufficient ownership to stay motivated (~20-30% founder ownership post-Series A/B is typical).

Concrete Examples and Case Studies

Pulley’s Compensation Framework: Paid 50th percentile cash + 90th percentile equity to early employees to balance competitiveness and budget.
Snapchat’s Backweighted Vesting: Used to align equity value creation with later-stage company milestones.
Windsurf Aqua Hire: Highlighted risks of early acquisitions where employees may lose expected equity upside; underscores importance of founder trust and communication.
Legal Pitfalls: Example of startups inadvertently opting into California law when not based there, causing unwanted employee protections.

Actionable Recommendations

For Founders

Engage legal counsel early to set up compliant equity plans and avoid costly mistakes.
Set clear compensation philosophies and communicate them transparently.
Be generous with equity early but monitor dilution and maintain control.
Use refresh grants and promotions to retain and motivate long-term employees.
Develop a consistent geographic pay framework and incorporate flexibility benefits.
Prepare for negotiation by understanding candidate motivations and financial needs.
Hold employees accountable with clear goals tied to equity vesting.

For Employees

Research founders and company mission before joining.
Understand equity terms, vesting schedules, and acquisition scenarios.
Negotiate compensation based on personal risk tolerance and needs.
Seek clarity on acceleration clauses and equity protections.

Presenters / Sources

Randy (Head of Talent and Operations, 645 Ventures)
Rebecca Lee Whiting (Fractional General Counsel, Epigram Legal PC)
Additional panelists from Pulley and other startup/VC backgrounds (names not explicitly given)

This session provides a comprehensive playbook for startups to thoughtfully design compensation packages that balance cash constraints with equity incentives, legal compliance, and fairness, while adapting to evolving market dynamics and talent expectations.