Equity Compensation: Is it Overrated for Startup Employees?

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I'd love to hear your thoughts, are stock options really worth accepting a lower salary at startups?

Accepted Answer

Equity comp can def attract talent if you sell the vision, but for most employees it's too complex. I vote for keeping the cap table clean and using performance-based bonuses instead - tie it to company success and keep it simple. Minority shareholders <10% collectively is 🔑

Borja DR · Answer

@brody_clarke I agree!!

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Depends on the startup's potential. If they succeed, it can be huge, but it’s definitely a gamble.

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Equity can pay off, but it’s risky. If the company fails, you could end up with nothing.

Daniel Joseph Bennett · Answer

Equity comp can definitely be a strong motivator if employees believe in the company's vision and potential. But I agree it's often too complex and poorly understood. Cash bonuses tied to company performance are usually simpler and more effective. And def keep that cap table clean - too many small shareholders just causes headaches down the road. I'm with you, performance-based cash comp over equity most of the time, unless you really need to sell the dream to get top talent.

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I'm not sure equity compensation is overrated per se, but you're right that most employees don't fully understand how it works or what the potential upside/downside is. Performance-based pay like bonuses or commissions is definitely simpler and provides a more direct incentive. I agree about keeping the cap table clean too. If you do offer equity, make sure employees are educated on what it means. But overall, cash is still king for most startup employees IMO.

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Equity comp definitely makes the deal seem sweeter even if the value isn't guaranteed. But I agree PRP is simpler and keeps employees focused on short term performance vs a far off potential payout. The dream of a big equity windfall can be a nice carrot though, if you sell it right. But def keep the cap table clean - too many cooks spoil the broth! So in summary, I'd lean towards PRP but strategically use equity as an extra incentive, just don't overdo it.

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I think it's overrated unless you really believe in the company’s growth. A stable salary is safer.

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Equity is only valuable if the company scales, but most startups don’t make it that far.

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For me, it's about balance. A bit of equity is nice, but I’d still want a decent salary.

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Only worth it if the startup has a clear path to success and you’re willing to wait.

Borja DR · Answer

@jacobnathanielwhite I agree, you need to sell it right!

Nicholas Watson · Answer

You don't have anything yet so what do they value it on?

But holding to mind most employees don't really understand them, I'd say it is possible if you can sell the dream.

I've never found it to do much though. It makes it more complex than it needs to be.

Performance related pay is much more simple.

Also, keep your cap table clean, and any minority shareholders collectively below 10%.

I vote PRP over stocks. Keep it simple, and tie it to the company doing well overall.

Equity Compensation: Is it Overrated for Startup Employees?

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