We need to rethink employee compensation

Definitely not under 25. I've built startups for many people over the years (both as full time as a consultant/contractor), and at this point look at work on someone else's idea as dollars first, equity is gravy. Why? Early engineers take a hit on salary and any equity stake is quickly diluted. It is pretty common for engineers post series-A to potentially end up with a higher equity stake than someone that came in after seed funding when you factor in dilution. This is common.

These days I look at startups as an opportunity to have a significant impact, build something interesting, but what am I giving up for the particular company? Can I gain the same benefits through other channels?

I recall a YC event where companies were pitching looking for talent. At least the Justin.TV guy was honest and said "we work our asses off", the startup that pitched "we work together, we play together, and we hang out with our customers at 9pm trouble shooting" -- great if you just moved to the area and don't have other outlets.

I've had some grate discussions with a few YC companies recruiting, some were wrong fit, some wrong match, some wrong time. In general, positive.

But the original thread is right...for a lot of the talent some companies want, compensation needs to match the talent level desired and equity/option, that crap shoot needs revamping.

If that is the problem, to make it more compelling, then you're simply advocating a pay raise.

Equity is called compensation but anyone who is working at their second startup should understand that calling that is misleading at best. Since the average tenure at the 'first startup' is about 2 years, consider it a 'masters program' in learning about what is and what is not compensation.

So if you're going to take equity in lieu of cash you need to understand how to compute the expected value of equity. And in early stage companies its almost always zero. In an acqui-hire sort of situation it is zero and your retention package is based entirely how important you are to making the eventual use of the technology successful. Doesn't matter if your a founder or not, if you're not useful you get nothing, if you are you get something.

But lets step back and ask the question again, if "equity" is the deciding factor in your decision as an employee to join a startup, then you are clearly doing it wrong. If you want equity to mean something, join a company that is already publicly traded, then those ISO options or RSU have real dollar value that you can compute using Black-Sholes or any other method. Stock in a pre-series B startup exactly equivalent to the collected wishful thinking of the founders and investors. And all of them know that if they get their money back they will count themselves lucky.

What is broken then is not how we compensate people coming into startups, it is the misconceptions they have about how startups work, and the fundamental fact that "stock in a startup" is even on the list of things they want. All you can ever ask for is interesting work, people that are fun to work with, and enough salary to pay the bills and put money into a 401k. If you have all of those as an employee than any stock you get that happens to become valuable is all bonus.

A) I am not a (major) outlier (or many of my friends are major outliers too). Bottom line: Senior Engineers can make $250K+ today. Burn that into your synapses. The Netflix listings already posted here demonstrate that. I know Facebookers and Googlers making twice that or more and they weren't even acqui-hires. Glassdoor (valuable information source it is) IMO oversamples the discontent. Senior engineering positions at hedge funds can be $800-$900K.

B) Sure, without getting too specific, I started out as a videogame developer writing games entirely in assembler, branched out to multi-processor and multi-user games also in assembler, and that set me up nicely for writing device driver code for Windows and that's how I got my first gig in the valley.

You can follow exactly in my footsteps by really learning C/C++ and how to optimize it on x86 processors or whatever takes their place down the road. I'm not writing x86 much anymore, but I'm still writing very low-level parallel code, and it is next to impossible to find people who are really good at this because they've either been snatched up by Big Co and hedge funds making far more than I do or they're nowhere near as good as they think they are.

But who knows what they future will bring, so don't follow it exactly but instead go learn the things that are both in demand and that people complain are too hard. That's what worked for me. When game developers said 3D was too hard, I jumped into it. When game developers said multi-core was too difficult, I mastered it. And those are the skills that led to my biggest paydays(1).

1. You can of course make $100M doing nothing but Ruby/Javscript/Python (and especially PHP), but that wasn't the path I took (though sometimes I think I should have).

I mean you have to consider both cases.

If you are getting founders shares as a founding member of the team, that is one particular calculus that I alluded to but do not address.

If you are a "founding engineer" but not really getting founding shares, but the typical fraction to a couple of percent that is one thing.

If you are a non-founding C-Level title that is another scenario to discuss.

If you are an early engineer, that is basically the same as "founding engineer" above.

If you are getting non-founding equity as an early employee, you have to be aware of of dilution after each round. In nearly every case, an early employee post Series-A likely will be getting pay more and more equity than an early non-founding employee.

This!!

There is another facet to your second point, I think. Even if the upside from the "sure thing" two years before they IPO is not great from a financial perspective, the career growth is much faster than joining a mature mega-corp. For example, many people who joined Google/FB/Twitter a year or two before the IPO are very senior at those companies now. Granted, not everyone who joined Google in 2004 is a VP, but the probability of rapidly growing your career as the company grows is much higher than for someone joining Microsoft in 2004.

That fast career growth leads to either 1) High compensation ten years later as a director/VP or 2) Exec roles at sure-thing unicorns with meaningful equity, should they choose to leave Google/FB/Twitter.

I think there are two justifications to go early stage if you care about the financial aspects:

1) Be the founder, as you said

OR

2) You have concrete reasons to believe that the company has a meaningful competitive advantage in a large market.

These examples are far and few. For example, Google in 1998 had a meaningful competitive advantage, but Facebook in 2004 certainly did not. WhatsApp in 2010 did not, but I'd argue with Carmack, Oculus might have had (although unsure in this case). As you said, it's really hard to say at such an early stage.

Of course, if financial upside is not a major concern, then impact, agility, working on interesting stuff, avoiding mega-corp red tape, are all valid reasons to go early stage.