What benefits to give to my first employee?

Question

I am hiring my first employee (a developer) for my startup and I am planning out the benefits. So far I’ve figured out the health insurance aspect. As a self-funded entity, I can’t afford much (about $60-72k for a frontend engineer — I’m a backend / cloud engineer), so I want to offer other meaningful benefits to compensate.

I am wondering what kind of benefits to offer. I thought about stock options to give, if that’s a good idea. I want to build a great team eventually and I want them to feel that they truly belong here. How many shares / percent should I give? What would the vesting schedule look like?

I also thought about PTO, 401k, continued education etc but I don’t know if I can afford all of this. I can probably offer 2 weeks of PTO, but not sure about the others.

What other benefits should I give my first employee / team member, under the constraint of a limited budget, as I want to build a nurturing, growth-oriented environment but I’m limited right now in what I can offer? Apart from a great vision, what would make you want to work at a startup?

Answer 1

• Buy pizza often and say that we are family, we gonna pick that low hanging fruit and will change the world
• 5% discount card for gas for going extra mile
• Give sound title like VP of UX, make feel important
• Involve in making decisions, strategy, hiring
• Give freedom of self expression, choose tools and technologies, set standards
• Incremental vesting plan, more equity with every year stayed in the company
• Cover hair transplant expenses if employee loses hair while working in your startup
• Let work from anywhere. Consider remote company style, your salary range could be more attractive in other countries
• If not remote, dedicate separate room with solid chair (massage), table and enough privacy
• Create company culture and story - you need to target specific personality types, like-minded individuals who would be motivated and suitable for the company

Answer 2

Paid time off is the easiest to offer, as it costs you nothing above the budgeted annual salary.

You're obviously in the USA. In the UK 28 days (5.6 weeks) is the minimum legal holiday entitlement for a full time employee.

Answer 3

If you took the difference between the market rate for what you want and what you would pay (salary + tangible benefits) that's essentially what you're asking them to invest in your business. What would you give to a VC who would invest that every year?

I'm not saying that's what you're going to offer. It's a negotiation, and tbh start-up employees can be a lot more naïve than VC people. And it's pretty obvious that while VCs are after only equity, an employee may accept something like leadership experience, relevant mentoring etc as part of their compensation.

But I think the best place to start is by at least knowing what the investment they're making would be worth to you if you had to get it via some other channel.

Once I knew that, I'd start looking at what I could offer and try to estimate what that would be worth to people. 401k, base salary, culture, time off etc. But I'd encourage you to also think of something you're in a uniquely competitive position to offer. I'll share one I've thought of: you're in a unique position to mentor a future entrepreneur someone though the process of starting a software business.

Answer 4

The bottom line is you need to offer whatever it takes to retain talent. As the saying goes, "you get what you pay for": If your salary/benefits/equity offered is only enough to retain a low-quality developer who just needs "any job", then that's what you will get. If your package is enough to only hire a junior developer, that's what you will get.

So basically, you need to be competitive with the market. Without a location tag or location description in the post, it's hard to know what is "competitive" in your locale. If you are in North America, my guess is $60-72K is not enough, and 2 weeks PTO is not enough. If you want an idea of what is "enough" (market data might not be helpful because if you're in SF you probably can't afford $200K to compete with Google), here's a rough guideline:

1. Take the median rent for an apartment in your area for someone in the age/experience bracket you're targeting (e.g. for a junior dev, then a single apartment is probably fine; for a senior dev then maybe a 2LDK, for a principal, then maybe a house).

2. Multiply that number by 3, because the rule of thumb is you shouldn't pay more than 1/3 of your income on rent.

3. Multiply that number by the tax rate your employee will pay. You'll have to reverse-engineer the tax rate from the net income.

That number you get is the minimum amount you should pay your employee, not including other benefits and equity. Start there, and see if you can even afford to hire an employee. If you can't, then maybe you need to get some sales or VC before you think of expanding.

Answer 5

Typically startups offer equity to make up for the lack of benefits. The idea being "We'll rough it out for a couple of years, then get paid big when we go public"