How to determine early stage startup salaries


As a founder and probably former employee at one point or many in your life, you may have to start with a reset to undo any preconceived notions of what you believe people are worth and what market rate is, unless you happen to be someone who specializes in payscales and salaries.
As a startup founder, you’re able to get creative with how you think about total compensation and what benefits you want to offer to attract and recruit employees. But now it comes down to the nitty gritty of deciding the actual dollar amount of what you’re going to be paying them, and there’s a lot of emotional weight in what’s “just a number” because of course, it’s tied up to all sorts of things like survival, ego, value, and budgets.

As a founder and probably former employee at one point or many in your life, you may have to start with a reset to undo any preconceived notions of what you believe people are worth and what market rate is, unless you happen to be someone who specializes in payscales and salaries. That’s going to be coloured by things like what your previous jobs were or even the state of the world the last time you applied for a job, which if you’ve been working for a single company for years, may have been a long time ago. Your goal is to attract the best person you can find and pay them not the bare minimum but an amount that you both agree on is fair, not begrudgingly, but happily. 

Salary strategy: transparency, negotiation, and branding

Will your salaries be transparent? Will you allow room for negotiation? Will you hire internationally? Among some of the preconceived notions of salaries, many of them have been disrupted in recent years by startups who’ve decided to try things differently. Salary transparency is increasingly common to help tackle ongoing issues of pay disparity for marginalized groups. There’s inarguably a convenience factor to it too, for both parties: leaving the pay discussion to the very end of the interview process can be a big waste of time if it turns out that there’s major misalignment on salary expectations. On the other hand, you leave a door open for negotiation for a unicorn candidate who may otherwise not apply if your posted target salary didn’t meet their requirements. Told you it was tricky.

On top of what you think you want to do, the law comes into play, too. Starting January 2023, California employers with 15 or more employees will be required by law to show pay ranges in job postings. But maybe you’re not in California, and maybe you’re just starting to hire employees and are far from 15. Pay transparency may be right for you or it might not. It goes back to your employer brand , your mission and values, and quite frankly, your preference as a founder—for now. For transparency’s sake, one last addendum here: most startups don’t have pay scales and salary ranges until they hit 20-100 employees, sometimes even more, but setting one up avoids gaps that can be expensive and annoying to fix later on. After all, pay inequity compounds over time, in more ways than one.

How to calculate a startup salary

Salaries are often the biggest startup expense especially for businesses that don’t carry any physical inventory, and any capital from funding is expected to cover the salaries required to develop and grow a business. Note that venture-backed companies are beholden to their investors on salaries. You’ll need to get your investors’ approval before hiring, as well as when offering equity , so being well-prepared with numbers and rationale is a must. 

Let’s figure out how to get to that magic number. 

Gather salary data

Websites such as, Payscale and Glassdoor aggregate salary data, and are a good place to start. does something similar specifically for software companies. Getting more startup specific, you can turn to job boards like AngelList Talent or even better, any niche job boards for your industry or role, where target compensation is usually listed. Note that sometimes the salaries range quite widely, usually to give startups some room for negotiation depending on the level of experience among favored candidates. 

While not the most scientifically sound way to obtain data, you can also talk to fellow founders to give you a great sense of market rate especially if they’re in the same industry and region. Try to speak to a variety of founders so your data isn’t biased and ask for referrals within your network to increase that spread of data. 

Develop levels and salary bands

You likely won’t be coming up with precise numbers but instead, salary bands with ranges. These are typically tied to levels, which act as a matrix for determining, broadly, responsibility levels and scope of work across departments. Levels can be very helpful in determining compensation, as you’ll want to come up with bands for each level, offering a formulaic way to get to that much-desired level (pun not intended) of transparency. Again, your numbers aren’t stagnant and likely will increase over time as your risk profile decreases, but they act as a benchmark for you, your investors, and potentially even employees, to understand where the numbers come from, to avoid bias and pay inequity, and to effectively scale compensation over time.

Molly Graham, startup advisor and former COO, shares her levels matrix that scales, suggesting startups start with three levels: pretty junior, pretty senior, and exec.

Work out your budget 

Your startup budget is a crucial tool and hopefully by this point, you’ve determined that there isn’t just a need to hire employees, but that it’s financially feasible. You can determine this by plugging in a best case scenario and worst case scenario into your startup budget spreadsheet, including salaries as well as additional expenses associated with hiring including payroll taxes, insurance, benefits, and more. Expert advice ranges from having at least two months of wages in the bank before hiring, anywhere up to a whole 12 months. The right answer really depends on other factors such as how busy you are, rate of growth and projected sales, market volatility, and other expenses.

And if you’re in that tough spot where you don’t have the budget (and even if you do and for the sake of keeping your cash flow healthy), you may want to consider alternative compensation models. 

Alternative ways to compensate early stage hires

As precise as we’d all like to get salaries down to, you may come across situations where it’s just not enough. You just can’t compete with established Big Tech companies, but there’s a unicorn candidate that checks all the boxes and then some. You crunch the numbers but as much as you try to finagle it, it just doesn’t work or it’s just way too close for comfort. You can’t afford them. What do you do? Even if you have a compensation strategy in mind and pay scales at the ready, if you’re early stage, you may just find yourself in a moment where you have to throw all of that out the window to make a critical business decision: what will you offer to get them on your team?

Pay for performance models
For example, you can tie a first marketing hire’s compensation to growth. Or a first engineering hire’s compensation to product development milestones. 

Contingent on funding
You can tie an increase in compensation to your startup's ability to raise capital

Founders paid less than market rate 
If you’re already paying yourself a salary, can you decrease it temporarily to free up some cash flow? Is there any way you can downsize? Founders paying themselves less than market rate, if they can afford it, is not uncommon given that they’ll have a much larger share of equity if the startup succeeds.

Value isn’t measured solely in salary

Be wary of overcompensating to “compete” for talent. The type of employee interested in working at a startup usually isn’t motivated by pay. That doesn’t mean pay doesn’t matter; it absolutely does. But it’s like that statistic that cited $70,000 as the salary that doesn’t increase happiness once you surpass it (keep in mind this number is vague and of course, doesn’t take into account geography or inflation). Higher salaries won’t necessarily get you better talent, nor happier and more productive employees. Inequitable pay, on the other hand, almost always leads to people not feeling valued.  

Think of other ways to provide value to your employees. In the competitive battle for talent, startups are primed to get creative. And just as you’d research customers to better understand their needs, you should also be researching employees and the type of candidate you’d like to attract to better understand them, too. Disrupt business, disrupt work. It’s all in a day’s work for a startup founder.
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