I love these hot and tumultuous times for emerging companies. Contrary to what some politicians and the media would love to have you believe, with every iteration the whole ecosystem is getting stronger, better, and more agile. But as more companies start up (or expand), there is a desperate rush to snap up the talented individuals needed to grow these businesses. This haste often leads to poor decisions and/or shortcut-taking, which results in compensation packages/offers that are one-sided, unfair, and detrimental to both sides.
In this article I want to take care of my readers who are looking to move to another startup or join their first emerging company. Here are the three top startup compensation shortcuts you should not settle for and accept.
Probably most common one you will see goes like this: “Let’s start you at salary X and after you prove your value, we will decide on the proper compensation and equity”.
I have made the mistake of accepting offer structured like this and know many others who have also made the same error before. Don’t ever EVER EVER accept any offer without well-defined compensation and expectations.
If you are an exec on the other side of the table, you are causing monetary damage to your company with an offer like that. Why? Sooner or later person, who accepted this poorly thought-out offer, will realize the imbalance of risk/reward and will leave just when you need them the most. It is often most valuable early employees get screwed with offers like that and leave bitter. I have recruited away plenty of people (easily too) who felt they got shortchanged like that.
An even worse offer is one that sounds like this: “why don’t you work for us for X months for free, help us out, show us what you can do, and then we will agree on your role, responsibilities, compensation, and equity.”
For those on the other side of the table, call your friendly employment law attorney. He or she will very quickly make you understand what you are about to expose your company to – this kind of rookie stuff bites you HARD!
This last type offer is becoming more and more rare, since less talent is falling for it: “we can’t offer you a salary at this time, but why don’t you work just for equity”.
And for folks running these companies, remember that in most states it is illegal to “pay” an employee all in “deferred compensation”. You have to pay at least minimum wage with applicable overtime.
I hope this article is helpful for both sides, and I hope fewer talented individuals will accept poorly designed offers like these. We need healthy companies with a healthy talent pool.