basics of startup compensation

1Copyright 2017, Advanced-HR Inc., All Rights Reserved.

[email protected]

By: Dee DiPietroCEO, Advanced-HR, Inc.

https://www.advanced-hr.com/

mailto:[email protected]?subject=More Information - Slide Deck


“Reward” is Relative to Risk

Align payout expectations to the company’s stage of development.


Equity provides the potential to make exponentially more capital than cash in

the event that a company does well.


BUT equity is not guaranteed. Equity may become worthless if a company

does not succeed.


Risk of company failure decreases as value increases

0%

20%

40%

60%

80%

100%

FOUNDING YEAR 2 YEAR 4 YEAR 6 IPO

Early Stage Mid Stage Late Stage

R

I

S

K

V

A

L

U

E


RESULT: Expect more equity and less cash at early stage companies. Expect more cash, but

significantly less equity at later stage companies.


All Companies are NOT Created Equal

Comparable equity holdings will produce varying monetary outcomes based on company value.


Same Grant, Different % Ownership

Company B

Company A

Stock Option

Grant

5,000

5,000

Fully Diluted

Shares

25,000,000

50,000,000

% Company

Ownership

0.020%

0.010%

RESULT: The same # of options provides a larger % ownership in Company A because

there are fewer fully diluted shares.


Different Ownership %, Same Company Value

Company B

Company A

% Company

Ownership

0.020%

0.010%

Company

Value

$500M

$500M

Gross

Option Value

$100,000

$50,000

RESULT: A larger grant is more valuable when both companies have the same

projected value.


Different Ownership %, Different Company Value

Company B

Company A

% Company

Ownership

0.020%

0.010%

Company

Value

$500M

$1.5B

Gross

Option Value

$100,000

$150,000

RESULT: The lesser ownership in company B is worth more than Company A because

the value of the company is larger.


Employment is an Investment in You

The ability to talk about compensation is extremely important.

$


Ask about the competitiveness of the compensation package. Companies typically create a roadmap

with how much cash and equity they will offer.


Good companies will pay competitively, they must or they risk losing key talent.

21

3


Take responsibility and educate yourself about compensation before meeting with an employer.


How? • Research job descriptions with salary ranges included

• Ask peers in similar positions

• Interview at another company and discuss compensation

• Ask friends in HR who might understand competitive data

• Consider crowd-sourced data, but be objective and realistic


Estimate your Investment over 4 Years

Calculate your cash over 4 years. Consider stock options worth $0 because the value is not guaranteed.

The difference between the packages is your risk.

Public Company

Startup

Base Salary

$100,000

$100,000

4-Year Value

of RSUs(if applicable)

N/A

$80,000

Strike

Price

$0.10

N/A

Bonus

$0

$5,000

Est. Value

over 4 Years

$400,000

$500,000

Stock

Options

15,000

N/A

($100,000) Risk


Calculate your Cost to Exercise (Buy) Options

Options are typically offered to employees at a lower cost than to the public market. The cost to exercise your

options will reduce the total gain on your equity.

Strike Price(Exercise cost per share)

($0.10)

Exercise

Cost

($1,500)

Stock

Options

15,000


Consider Potential IPO Values to Understand Outcomes

Understand different scenarios based on other companies at their IPO. Research starting public share prices and refine the list by industry sector to estimate.

Probable Estimate

Conservative Estimate

Potential

Stock Price

$5.00

$10.00

Stock Option

Value(Less exercise cost)

$73,500

$148,500

% Loss /

Gain

-27%

49%

Stock

Options

15,000

15,000

$ Loss /

Gain

Aggressive Estimate $20.00 $298,500 199%15,000

($26,500)

$48,500

$198,500

Based on

$100,000 Risk


SYNOPSIS: An improved understanding of startup

compensation allows you to accurately assess the

competitiveness of an offer or package.


Don’t be afraid to ask for supporting market data. Companies should obtain this to ensure

competitiveness of offers.

?


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FROM

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basics of startup compensation

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