However, you may signal to the startup that you want the job for the wrong reasons, or your risk tolerance is not high enough to do a startup. PG advises startups to look for the sort of folks who are willing to work mostly for equity, because that aligns incentives around the startup's success. If you're taking mostly salary you have little skin in the game.
Buffer offers a choice between extra salary or extra equity. Every single one of their engineers is taking the salary election, while it's mixed for other roles.
Want good people? Don't undermine your ability to attract people who are investing in themselves as much as in you, or who have families and mortgages to worry about.
That doesn't contradict equity aligning incentives more between the startup and the employee. The reason it's more rational to take salary is because you get paid even if the startup tanks; if you're a startup founder and your primary goal is to prevent the startup from tanking, you want your people to take equity as much as possible so they have every incentive not to let it fail.
The original question was about signaling, and here's the problem with wanting to do a startup and yet get paid mostly in salary: it exists in a bit of a no-man's-land as far as risk tolerance goes, where you still face significant risk of being out of a job and yet don't get the upside of startup success. If you really want stability and a paycheck, why not go work for Google? They're not going anywhere any time soon. The only time I would recommend taking a startup job paid primarily in salary is if you're mostly in it for the learning experience, so that you can see how things are done in a small company and yet financially insulate yourself from things going poorly.
Because you can often get a less corporate job doing work you enjoy more with people you enjoy more while still having manageable risk and progressing your career. That goes triple for software engineers in the Bay Area, for whom "out of a job" is a minimal risk that frequently results in a pay raise.
People mostly don't work for startups for the lottery ticket. Equity isn't really compensation, or shouldn't be taken as compensation, so much as it's a social signal. And even then, equity is more about investors than employees. Equity only evaluates to any sort of compensation at all in the event of an exit, in which case they want the senior staff to have some degree of additional incentive not to immediately leave for a new gig.
Possibly. The idea of equity (in the form of options) is the company avoids paying as much up front as they might otherwise, in exchange for a stake in the company's future. If you turn down the future stake, you may signal that you don't think the company has a reliable future, or you may be taken as a pragmatist -- it depends on the individual to whom you speak.
Obviously the extreme would be a company that only offers options, no salary -- there's a cut-off point where no one will take them up on their offer. And remember to look at this from the opposite perspective -- the company wants to attract intelligent, creative people, the kind that might understand options too well to want them. They need to understand candidates' likely responses and the reasoning.
[% annual salary haircut] = [likelihood success in 10 years] * [estimated stock price] * [expected salary sans options]
... or something. Obviously it's far from a science, but I think there should be some kind of general way to arrive at reasonability. Currently start-ups essentially rely on how poorly people gauge the probability that a company will actually be successful vs. actual numbers. Or, put another way, how willing the hiree is to gamble/risk.
I only bring this up because, after personally seeing or being on the losing end, I would never accept the salary haricut for options again unless I could somewhat reliably gauge them, probabilistically. Maybe that's something I'll look into for the future. People do this kind of thing in the Insurance industry and on wall street all the time, I suppose.
Sidenote: Paul, thanks for all the really cool stuff you've done over the years.
It's not like science or math. There are too many subjective issues at work -- a relatively new company in a fluid marketplace, issues of personal psychology, guessing how applicants will respond to the prospect of options. Any fixed formula or policy would likely be invalidated by events in a short time. It reminds me of the old saying, "The first casualty of battle is the battle plan."
> I only bring this up because, after personally seeing or being on the losing end, I would never accept the salary haricut for options again unless I could somewhat reliably gauge them, probabilistically.
Yes, and this is because you have experience. A younger applicant might not understand the issue as well, or might have heard a statistically improbable but dramatic story of someone becoming rich on options.
From the management side, they might guess at the age and experience level of the applicants, and adjust their pitch accordingly.
> Paul, thanks for all the really cool stuff you've done over the years.
You're most welcome. Here's my latest article: http://arachnoid.com/IPython