There’s a reason we tend to avoid conversations about compensation. They’re awkward, hard to navigate, and confusing. Throw in the simultaneous risk/reward calculation of joining an early-stage startup, and it’s no wonder discussions about cash and equity cause heads to spin. But if you’re a founder trying to land a force-multiplying hire, handling these conversations properly is worth it. Fortunately — like most things that are difficult — the more you practice, the better you’ll get. 

One success driver is understanding how to engage in compensation conversations well before you reach the offer stage. Discussions early and often will allow you to uncover a candidate’s needs while also giving you the opportunity to be transparent about what you’re able to offer. Failing to execute a proper strategy may cause your candidate to pick up their head and set their sights elsewhere. 

So, what are the most important things to keep in mind while working to build a compensation package that works for both parties?

I recently sat down with Peter McKee — leader in the compensation management space and Founder and CEO at Aeqium — to delve into the topic of startup compensation. In this wide-ranging but actionable conversation, Peter and I discussed the pitfalls of compensation negotiation and how to avoid losing candidates to your competitors.  

Founders will find actionable tips and resources in the video above, but I want to take a moment to unpack these topics even more. A lot of these insights and practices were first developed in my time leading talent at Fleetsmith (growing the team from 45 to 90 in under six months), and at Wealthfront (building the talent engine for 325 hires). What I learned in those roles has helped me apply a comprehensive approach to the startups I help here in my current role as Director of Talent on our founder support team (which we call GAP, or Get Ahead Platform). These experiences have given me a unique perspective on the specific tactics and best practices for early-stage startups, and I’m eager to share them.

Engage early, and often: Ask your potential candidate early on what their compensation expectations are. This will decrease the chances of a painful conversation (for both parties) and/or avoid a compensation mismatch after many hours of conversation. 

Working with the two possible candidate approaches: 

The first candidate approach — usually happens with more junior candidates — is the willingness to be forthcoming and work through the compensation expectation conversation together. When working with this type of candidate, it is easy to understand and work through the offer together. 

The second candidate approach is the less forthcoming candidate and one who will  play “hardball.” In the first or second call, if you aren’t getting any indication on what type of offer would make them happy — don’t panic. Once you start initiating more conversations and spend additional time selling your company to this candidate, you need to assert that you need some type of direction. If you aren’t getting anything back, it can be somewhat of a flag. An approach to take with this type of candidate is to be transparent and help them understand that while there is room for some negotiation, you would like to get as close as possible to their compensation goal to ensure their long term happiness at your company. Try to avoid room for a negotiation battle.

Set expectations: Don’t expect to make one offer to a candidate and have them accept on the first try. Alternatively, make it known that this is not a negotiation battle and your second offer will be your final offer. 

Include more than one offer: Sometimes offering upwards of three to four different choices to a candidate leads to better rapport. This will allow them to discuss with supporters and understand what would be the best option for them. Although some candidates say that they want a generous amount of equity, sometimes putting it on paper may be a bit of a shock to them. Everyone needs cash at the end of the day and offering a different set of options is a way to meet them in the middle. 

“There’s no ‘hoping’ in recruiting”: If you as a founder/hiring manager are unsure if a candidate will accept and sign your offer, you need to decipher what it is that is making you feel that way. It never hurts to ask, “How are you feeling? What do you still need uncovered?” If you are ‘hoping’ that a candidate is going to sign, odds are, they’re not.

Sell the full package: Understand that working for a startup is an opportunity many people want to experience. Not only are you selling the compensation package, but you’re also selling the growth potential and all the learnings you get while working at a startup. 

Discussing equity:

Successful startup hiring teams have a playbook for pitching candidates on the value of their equity compensation. Even Silicon Valley veterans will bust out a spreadsheet to make sense of their equity’s value, so convincing a candidate who may not even have experience with equity compensation of your offer’s value can be a daunting task. The team at Aeqium wrote a guide on pitching equity and their platform includes an interactive offer letter to make it a simple and personalized experience.

The best approach is to pitch your equity offer to candidates as if you’re pitching them on an investment (because you are!) Give them all the information they need to assess the present and future value: the current strike price, latest share price paid by investors, and your latest valuation. This can feel like a lot of transparency, but at the offer stage you need to be able to trust the candidate with sensitive information.  Once you’ve given them the basics, pitch them on how it could grow over time: what are other companies in your category or with the numbers you’re targeting worth? What would that mean for the value of the offer if you achieve those goals together? 

Aeqium’s interactive offer letter gives the candidate all of those key details, explains what they mean, and helps them visualize how the equity vests and what it could be worth. A candidate can play with the numbers themselves and let their imagination run wild on what their stock could be worth. This helps them internalize it better and also avoids an awkward situation caused by your hiring team telling them what they think it will be worth. 

We hope this is a helpful resource to you while growing your company. For more detailed, actionable resources for your early-stage startup, be sure to check out the Field Guide and sign up for our Unusual Community newsletter for the latest company-building resources and events!