“Here’s the offer we’re giving you,” the CEO said to me. Then he told me what the equity and salary would be.
“What do you think?” The CEO asked me.
“I’ll give it some thought,” I said. “But my initial response is it seems low. The salary is lower than market and so is the equity.
“I think I’m better off staying where I’m at.”
“What would it take to get you to change your mind?” The CEO asked me. I told him the numbers. I knew the market for my role at the stage the company was at, so I was very confident in what I was saying.
“But that would mean your salary would be higher than mine,” he said. “Does that seem right to you.”
Great talent is just not going to join your company if their compensation doesn’t make sense.
“I don’t know if it (paying me more than the CEO) is right or not, but it is what’s fair.”
“It seems you’ve given me some things to think about,” the CEO said. He stood up and extended his hand. I shook it, and I left his office.
Needless to say, I didn’t end up joining that company. The reason I didn’t join the company wasn’t because the salary was lower than the market. I understood that they might not be able to afford to pay me market rate or that their salary structure was lower than the market.
The reason I didn’t join the company was because the salary AND the equity were lower than the market. That didn’t make sense to me because it felt like I would be taken advantage of if I joined the company.
You overcompensate with more equity if you can’t afford to pay your team market rate.
I did remember the meeting with the CEO when I founded my company. I knew that great talent wasn’t just going our company because we had a great plan. Their compensation had to make sense too.
So, at the early stage of the company when it was just me and my cofounders, I did the obvious and gave my cofounders a healthy amount of equity to compensate for the risk they were taking. We also began recruiting engineers for after we closed our initial funding.
You, the CEO, should be the last person in the company to make a market rate salary.
The key to our success, as is true with many technology companies, would be our ability recruit top engineering talent to join our company. Our strategy was paying them market rate salaries and market rate equity.
The only problem with this strategy was that we had a certain amount of money, and we needed that money to last 24 months. It was clear, after I did the financial planning, that the founders (including me, obviously) would be making less than some of our most senior engineers.
Why do you care if some of your team makes more than you make, seriously?
I never had a problem with members of the team making more money than I was making, nor did my cofounders have a problem with members of the team making more money than they were making.
Our thought process was simply that if we had a great team of people that were highly motivated because we paid them fairly, it would up the chances of our company’s success. And that’s exactly what you because you end up a huge winner if your company succeeds.
For more, read: How Do You Get Execs To Join Your Startup Without Equity?