How Much to Pay Your First Startup Employees
Stop guessing on compensation. This is the tactical guide to setting salary and equity for your first 1-10 hires, balancing your burn rate against the need to attract top talent.
TL;DR: To hire your first employees, offer a mix of salary and equity that reflects your stage and philosophy. Early hires (1-5) typically receive lower cash salaries (60-80% of market) but significant equity (0.5-2.0%). To calculate the true cost, multiply salary by 1.25-1.4x to account for taxes, benefits, and overhead.
Key takeaways
- Define your cash vs. equity philosophy before you hire.
- For hires 1-5, expect to offer 0.5% to 2.0% in equity.
- Calculate the "all-in" cost of an employee as 1.25x-1.4x their salary.
- Use contractors for non-core functions; use employees for core product and IP.
- Create standardized bands for salary and equity to ensure fairness.
- Clearly explain the risks and rewards of equity; never over-promise.
The Core Dilemma: Runway vs. Talent
Hiring your first employees feels like a paradox. You have just enough capital to be dangerous, and every dollar spent on payroll is a dollar removed from your runway. Yet, the only way to build faster and make your capital effective is to bring on exceptional people. Get this balance wrong, and you either run out of money or build a mediocre team.
Your goal isn't just to "fill a role." It's to sell a high-risk, high-reward opportunity to someone who has safer, better-paying options. Compensation is how you structure that sale.
The Cash vs. Equity Tradeoff: Pick Your Philosophy
Early-stage compensation is a sliding scale between cash (salary) and equity (ownership). You can’t afford to max out both. You must decide where you want to be on that spectrum. This is your "compensation philosophy."
Example Scenario: You're hiring your first senior engineer. The "market rate" for their role at a large tech company is 00,000. You don't have that kind of cash.
- Equity-Heavy Offer:
30,000 salary (65% of market) + 1.5% equity. This is for the true believer who wants significant upside and can afford the cash haircut.
- Balanced Offer:
60,000 salary (80% of market) + 0.75% equity. This appeals to a candidate who is risk-aware but still wants meaningful ownership.
Presenting this choice explicitly shows respect for the candidate’s personal finances and risk tolerance. It frames them as a partner, not just an employee.
A Framework for Your First 10 Hires
Compensation changes as your startup grows. Your first hire is a different bet entirely than your twentieth. Here’s how to segment your thinking.
Phase 1: The Founding Team (Hires 1-5)
These are your "founding" employees. They are joining when the risk is highest and the vision is purest. They aren't joining for market-rate salaries; they are making a bet on you and the mission.
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