Basics of Startup Compensation

1Copyright 2017, Advanced-HR Inc., All Rights Reserved.
WWW.ADVANCED-HR.COM
info@advanced-hr.com
By: Dee DiPietro
CEO, Advanced-HR, Inc.

“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.
2
1
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.
?

Compensation plans without the consulting cost.
With Option Driver’s automated leveling, you’ll spend time on your
analysis and planning, not data entry. Integrated market data provides
custom data sets based on employee location, level and job family.
Then build a plan tailored to your company strategy and affordability.
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FROM
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Option Impact is the largest private company database with
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Basics of Startup Compensation

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