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Compensation

Compensation basics

  • It often helps to obtain market benchmarks (in similar stage & geography) - check out some benchmarks on Angel.co, Glassdollar or our analysis below.
  • Internal consistency: Be aware that at some point (probably not at the very early stage) employees within the organization find out how much their teammates earn, increasing the importance of a justifiable compensation plan
  • Employee background & resulting preferences: Keep in mind that risk appetite differs between employees based on their character but also their living situation. Take the example of a family mother that has to pay a mortgage vs. an independent graduate with no debt.
  • The earlier the startup, the more pronounced employee's entrepreneurial tendencies need to be.
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A compensation package normally consists of two components: Salary (fix + bonus) + Stock Options

Compensation break-down

1. Salary

  • Especially with early stages companies, salaries should be able to cover immediate and rather basic needs. Anything beyond that should be covered by stock options.
  • It often helps to relate pay raises to funding rounds
  • Founder salaries vary from zero (however, less likely nowadays) to EUR 200k (in case of scale-ups)
  • C level additions over time often earn significantly more than founders (we have seen compensation requests exceeding EUR 300k - ignoring any stock options)
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Salary averages within btov's portfolio (stage and location agnostic)

2. ESOP

ESOP programs are crucial to acquire and retain top talent. While they motivate employees and create a sense of unity and mission moreover, they should be treated as a precious currency. If not used wisely and thoroughly, they might evolve into a very expensive tool.

Compensation Philosophy: Stock option socialism vs. Capitalism

There are different schools of thought in the fields of ESOP distribution approaches. Some founders allocate stock options to every single employee and others do not allocate any at all. Looking at our portfolio, all our companies run some kind of employee incentivization program - for very good reasons. However, to varying extents.

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In the interview process when negotiating compensation, demonstrate the potential value appreciation after a future funding round and emphasize the upside scenarios. BUT be careful not to over-hype as this can damage your credibility and set unrealistic expectations.

It often helps converting the options into yearly attributed €-values, assuming different valuation scenarios.

  • The stock option % designated to different positions very much depends on
    • Seniority, uniqueness and relevance of the employee
    • Phase and thus valuation of the company (the later the smaller the %)
    • It is thus difficult to attribute certain stock option packages to different roles. For specific advice you should get in touch with us and we can provide you with some more specific benchmarks. A first guiding rule is that the monetary yearly stock option value normally amounts to 40-80% of salary - again this depends on role and seniority and employee preferences.

  • Generally, we deem a 4 year vesting schedule, including a 1-year cliff, as suitable. This is very much in line with market standards.
  • For senior (mostly C-level) hires, including founder vesting, we more often see a so-called loyalty cliff of two years. In this case, an employee-initiated leaver within two years after investment corresponds to a Bad Leaver.

Helpful tools to calculate ESOP and compensation

For more information and tipps, check the startup resources notion articles

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