Working at a startup can be an exciting and rewarding experience. Startups give you the chance to pursue your passions while building a team of smart, passionate colleagues.
However motivating a job at a startup may be, though, people still need to put food on the table. Not paying employees adequate compensation is one of the most costly startup mistakes. So what should you know about startup salary and compensation?
What is a reasonable startup salary?
Working for a startup almost always involves taking a salary cut, i.e. being paid lower than market rate. However, startup employees expect to receive other forms of compensation—usually equity in the company—with the hope that these will make up for the lost wages in the long run.
According to Payscale, the average salary for startup employees stands at roughly $101,000 per year, with a range of $54,000 to $185,000. ZipRecruiter gives a slightly lower estimate of startup annual salary, with a nationwide average of just under $81,000 per year.
Of course, these general startup salary figures aren’t as helpful as data for specific job titles. From project management to accounting, startups need a diversity of skill sets to succeed. Below are Payscale’s estimates for a few roles:
- Software engineering: $102,000 (range of $73,000 to $138,000)
- User experience design: $78,000 (range of $55,000 to $108,000)
- Sales director: $89,000 (range of $58,000 to $130,000)
- Product manager: $112,000 (range of $76,000 to $148,000)
In addition to full-time positions, startups also need to fairly compensate startup interns. Intern startup salaries are usually somewhat lower than permanent jobs. U.S. federal law states that interns must be paid at least minimum wage—as long as the employer receives more value from the arrangement than the intern does.
How do startups get paid?
The question of startup salary and compensation is more challenging because most startups are constantly looking for new funding. Startups that are in the “seed stage” receive capital from a few investors, who exchange their money for an equity stake in the company.
This seed money is used to support the business and pay employees until the company can generate its own cash flow. Seed funding is then followed by multiple larger rounds of venture capital financing, which are named according to their order: Series A, Series B, Series C, etc.
Much of this funding is passed down to the company’s employees, who are typically given both startup salary and equity. In addition to their annual base salary, employees are also given stock options when they sign on.
Stock options give the owner the right to buy the company’s shares at a fixed price. Employees with equity hope that the stock price will rise above this initial price (also called a “grant price” or “exercise price”), which lets them sell their shares and make a profit.
In addition, stock options typically come with a vesting schedule to encourage workers to stay with the company. This means that some shares “vest” (i.e. become available for purchase) sooner than others.
For example, a vesting schedule may be four years long, with 25 percent of shares available after every year. This arrangement would be said to have a one-year “cliff,” which is the minimum period an employee needs to work for the startup in order to purchase any shares.
Do startup founders get a salary?
As the leaders of the company, early-stage startup founders may or may not choose to draw a salary, in addition to their equity stake. This decision depends on various factors, such as the company’s financial health and the founders’ ability to self-finance.
It’s hard to give a one-size-fits-all answer here, since startups range from massive operations to tiny two-person passion projects. However, there are still a few data points that offer a clearer picture into startup CEO salary, which tends to be in the high five or low six figures.
According to estimates by 80,000 Hours, for example, startup founders in Y Combinator pay themselves around $50,000 in salary. Meanwhile, the accounting firm Kruze Consulting reveals that for startups with $7 million to $8 million in financing, the average startup CEO salary is $130,000.
Other founding roles, such as the chief operating officer (COO) and chief technical officer (CTO), may also receive a startup salary. According to ZipRecruiter, the average startup CTO salary is roughly $144,000, while the average startup COO salary is roughly $123,000.
How to negotiate salary at a startup?
Despite the expectations of lower wages, there’s usually room for startup salary negotiation when joining the company. If you want to negotiate your startup salary, here are a few things to keep in mind:
- Cost of living: Many startup headquarters are in areas with high costs of living. This is especially true of tech companies—think Silicon Valley, New York, or London. If you’ll be living in or relocating to one such location, you have a good reason to push for a salary bump.
- Years of experience: Even with lower salaries across the board, startups still value employees with valuable backgrounds. If you bring many years of experience or specialized knowledge to the table, note these factors during the negotiation.
- Salary increases: While you might be willing to take a pay cut initially, your startup salary should rise as the company earns more funding from investors. Make sure you work out an agreement for how your salary will increase over time.
- Equity: In exchange for lower salary, you may decide to accept a greater equity stake in the startup. Of course, any such decision should be weighed against your financial situation and your honest belief that the company has the chance to make a big exit.
- Alternate compensation: If your bosses won’t budge on salary, you can still push for other startup compensation. Startups are often more flexible with perks such as job title or extra vacation time. For example, joining a startup might be the career move you need to go from “Software Engineer” to “Senior Software Engineer.”