Resources for insight and
inspiration
Guides
Insights
Startup Compensation Strategy: Best Practices and Pitfalls for Founders
When your startup is strapped for cash and focused on growth, compensation can feel like a puzzle. But how you pay yourself and your team sends a signal - to investors, regulators, and employees. Done wrong, it can cause legal headaches, tax issues, and cultural tension. Here's how to navigate early-stage compensation the smart way.
Legal Essentials: Employment Law Fundamentals for Startup Founders
When you’re building a startup, employment law may not be your first priority - but it should be close to the top of your list. Mistakes in hiring, classifying, compensating, or terminating employees can trigger lawsuits, fines, and reputational damage. Here’s a practical guide to the employment law issues every founder should get right from day one.
Terms of Service: Why Your Startup Needs Them—Now
If you run a website, app, or platform, your Terms of Service (TOS) are more than just boilerplate - they’re your shield. They limit your liability, set ground rules for users, and give you power to enforce your policies. Skip this, and you open the door to chaos.
FAQs
Open allWhy is vesting important for founders?
Vesting ensures equity is earned over time, protecting the company if a founder leaves early and keeping incentives aligned with long-term success.
Should founder equity always be split equally?
Not necessarily. Equal splits can help maintain alignment, but contribution-based allocations may be appropriate if founders bring significantly different resources or commitments.
How large should the employee equity pool be?
Most early-stage startups reserve 10%–20% for employee incentives, with flexibility depending on hiring plans and growth stage.
Why shouldn’t equity be expressed as a percentage?
Percentages can shift as new shares are issued. Defining equity in terms of actual share counts provides more accuracy and avoids misunderstandings.
Do all employees in a startup receive equity?
Not always. Equity is more common in early-stage startups and higher-level roles, though many growing companies expand equity participation to create a stronger ownership culture.
How do employees know what their equity is worth?
Equity value depends on company valuation, which changes with funding rounds, revenue growth, and market conditions. Clear communication from leadership helps employees understand potential value.
Why do startups use vesting schedules?
Vesting ensures employees earn equity over time, rewarding commitment and protecting the company if someone leaves early.
What is the most common type of equity compensation for startups?
Stock options remain the most common, but RSAs and RSUs are increasingly popular depending on company stage and employee needs.
What are the risks of converting my business entity?
Risks include tax consequences, restructuring ownership rights, and compliance burdens. Without proper planning, these can create legal or financial complications.