Written By
Max Brown

12.21.16

Is a Salary Benchmark Valid For a Startup?

The more experience I gain recruiting people into startups, the more I encounter founders and candidates on a quest for an apples to apples compensation benchmark. It’s a logical conclusion to the question “how do I value a job at company A vs a job at company B?”  This is especially true for the start-up world when you’re being hired to help create both the product and the company culture. However, each company and opportunity is as unique as the people who work there. The best way to evaluate the opportunity may not be a salary benchmark compared with other salary numbers. So, what’s the right way to assess a position?

Nonmonetary Value

Imagine you have two opportunities to choose from. One is a Fortune 500 company with a higher salary, solid 401k match, and a big brand name. The second company is an unknown but well funded startup with exciting technology and a great founding team. Let’s compare the two. The Fortune 500 company offers a higher salary and a clearly defined path of progression, provided you fit into the company culture. The path ahead will be challenging, and you’ll be able to collaborate with other people and departments to succeed. However, more structure also means you’re being hired for a specific role. You’ll have less flexibility to wear different hats and pursue challenging – and sometimes risky – passion projects to benefit the company.

At first glance, the startup offers a smaller package. The salary is significantly lower, and the 401k is coming after the next funding round. You know a lean team means you’ll be working late more often. However, they’re giving enough equity to potentially change your lifestyle if you succeed. You’re responsible for forging your own progression path, encouraging you to grow with the company. The path ahead will also be challenging, and sometimes you’ll feel the weight on your shoulders alone. However, you can make an impact, and because the company is much smaller, you’ll gain skills and overall marketability. You’ll still be able to choose a more formally structured role in the future if you prefer. You’ll have a higher level perspective too.

In essence, with the startup role, you’re accepting less now to develop skills that will make you more marketable later, with the possible upside of a large equity package as well.  It’s the classic case of more risk leading to more reward, but which do you choose? Ultimately, the right choice depends less on what each company is offering, and more on what you yourself are looking for and can take on. And the more honest you can be with yourself when presented with those opportunities during the hiring process, the more fulfilled you’ll feel in your new role. This is one reason why a salary benchmark is valid but only part of the picture. It’s a good data point in a much larger graph.

By the Numbers

That said, it’s also important to do your own due diligence prior to diving into a startup. It’s normal to ask about the growth rate, and how many people the company plans to hire in the near future. Inquire about their bonus structure (or plans for one). If you’re offered equity, ask about strike price and total shares outstanding.  If their first answer to any of these questions is “I don’t know,” don’t be afraid.  Startup life is chaotic and unpredictable, and oftentimes the CEO might not know what’s going to happen more than 6 months in the future, and that’s ok. However, if the people hiring you say “I can’t tell you” as an answer to these questions, or promise you an answer and then never deliver, that’s a red flag.

Hiring Manager and Candidate Perspectives

To answer the original question: there are two sides to using salary as a benchmark: employer and employee. A founder’s key responsibility is to hire the right people, and to do so with enough capital left over to fund the company through (and significantly past) an initial product launch. From the employee’s perspective, does this opportunity pay enough for you to join the company? Salary is a good ballpark gauge. It functions as a stage-gate: if the salary offered is too low, negotiations cease. If the salary offered is palatable, negotiations continue. But salary can only tell you if you’re in the right section, not if you’re in the right seat.