One rule of thumb when hiring employees in an early-stage startup that the starting salary is 30% below “market” for a similar role with an established company. To compensate for the lower salary, options are offered. The first option grant should compensate for the lower salary and vest over 4 years with a one year cliff. This means that 25% of the options vest on your 1 year anniversary and the remaining options vest monthly over the next 36 months. You always want to make sure your employees have several years of options ahead of them so sometime in year 2 or 3 you should refresh the options with a new grant extending out an additional 4 years. The grant should be equal to 25% of what a new hire would get in a similar role. And then every year after, you would apply the same logic of granting 25% of what a new hire would get in a similar role (with the grant increasing for tenure, seniority, and promotions). In this way, the team keeps 4 years of unvested options ahead of them at all times. In exceptional situations, a separate “bonus” can be given to key employees via an additional option grant.
Categories: Startups
