One common misstep I’ve seen founders and recruiters make is waiting until the final stage of the interview process to bring up compensation with the candidate. This might be because they’re used to working at a bigger company where salary bands are more or less set in stone or because they come from a working environment where they’re not subject to budget constraints. In the world of startups where time and resources are scarce, putting off the compensation conversation with a candidate can be a costly mistake. When I work with portfolio founders through our GAP engagement, I advise them to flip the script and surface the candidate’s compensation expectations in the very first conversation.
Discussing compensation can be awkward and uncomfortable, but it’s a muscle every founder needs to build. If you wait until the final stages of the process before you mention compensation, you risk wasting all your effort if your budget and their needs don’t align. To avoid this, decide what you can budget for the position. Once you have that number in your head, you can ask the candidate for their expected range and move forward knowing you’re aligned and that they’re likely to accept if the interview process goes well. Here’s some suggested language:
“I want to be transparent. You have a certain number in mind and we have our budget for the role. I want to make sure we’re aligned and able to bridge any gaps. What do you need in terms of compensation in order to make this work?”
If you’re coming from a genuine place, the candidate should be receptive to having an open dialogue with you. If they respond with a number that’s way outside your budget, that’s ok. Be honest about it and encourage the candidate to be transparent with you in return.
One thing to note is that while it’s helpful to have a budget in mind, you don’t want to risk losing an amazing candidate because they’re a little outside your budget. I’ve seen founders refuse to budge and waste months of their time restarting the process. Your goal is to find the best person for the role and if you find them, spending an extra $10-15k is well worth it.
Most people only think of cash and equity when they think about compensation, but there are several different dimensions of compensation a candidate might consider. Here are eight that I’ve seen factor into a candidate’s decision of whether to take the job or not:
How a candidate values each of these dimensions depends on their individual situation. For instance, a candidate without a family might take a lower cash base and more equity because they have a higher risk profile. The key to closing candidates is understanding what the particular candidate is looking for and translating that into the different options that you present back to them. I advise founders to take the candidate’s life situation into account, be empathetic, and try to understand what is most important to the candidate. That means thinking about the compensation package comprehensively and making lifestyle accommodations where possible.
When you put together your offer, don’t forget to provide a couple different compensation packages so the candidate can choose the best option for them. You might include one that’s higher on equity with less cash, another higher cash and lower equity, or another with additional conditions or benefits. In other words, take the range of what you want to pay and create multiple tiers around that number. Here’s an example:
The candidate can then choose the option that best suits their needs and life situation.
As much as you want to be flexible and make it work for both parties, the compensation conversation can be a useful tool for weeding out candidates that aren’t in it for the right reasons. If a candidate is solely interested in cash and isn’t making an effort to meet you in the middle with higher equity, it’s a strong signal they aren’t invested in your mission or ready to join an early-stage startup. It’s a challenging journey ahead and you want to make sure you’re bringing on people who are in it for the long haul.
When it comes to closing the candidate, there are a number of tactics that can make you seal the deal. First and foremost, you want to make sure they are considering the exit. Prompt them to consider what their 1% of equity would mean if the company got bought for $1B. When you present the offer, include the number of shares (i.e. 250,000 shares) as well as the percentage to help them visualize what their ownership could mean.
Besides the financial upside, walk the candidate through what the opportunity could mean for their career trajectory. For instance, you might highlight how coming in as an early engineer can be a stepping stone to them becoming a future Engineering Manager or Director of Engineering. One advantage startups have over larger corporations is that they can emphasize the ownership candidates can have in building a company, not just a product.
If the candidate has reached this final stage and they're still hung up on compensation, there are ways you can meet them where they are. For example, if your offer is $20k below their compensation expectations, a one-time $20k signing bonus can help bridge the difference. Candidates joining a startup usually know they're taking a cash hit, but a signing bonus can ensure it’s not a huge lifestyle adjustment and be a gesture to show you’re invested in bringing them on board.
Even if you apply all the principles above, you can’t win them all and there will be candidates you miss out on. It’s part of the process and you shouldn’t be discouraged. Add them to your applicant tracking system (ATS) so you can stay in touch and follow up as you secure more funding. Building a company comes down to having the right people. Routinely checking in with the right candidates will make sure your relationship is warm for when they are ready to make the leap.