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I'm very interested to ask you what do you think about giving company equity or stock to employees. In my view this should make them much more motivated to work.

Have you see this practice to lead to some great results or I'm wrong?

The reason for asking that question is that I want to start a company. And I want to pull old senior developers, product managers and etc people to the company. I'm thinking what would be the best way to offer them very good compensation having in mind that my budget is very low.

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    Most developers I know are not motivated by the small probability the startup they work for takes off and makes them rich via equity but by interesting work and good relationships with their coworkers and bosses. – Peter Feb 2 at 9:45
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    Can you add to your question why you think this would work? That makes it easier to address your reasoning instead of just your proposed solution. – Erik Feb 2 at 10:20
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    You're not wrong, but you're not right either. Not everyone is motivated the same way. And if you give away too much equity at the beginning, that can be a problem too. It really depends on your current situation, which you haven't told us much about yet. Before you do anything, I highly recommend that you read this book "The Partnership Charter". It was written by a mediator that has lots of experience breaking up partnerships that went bad. He wrote that book to prevent potential partnership breakups and potential startup failures. – Stephan Branczyk Feb 2 at 10:41
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    I agree Joe, but hiring and replacing people is also not a good option. It's expensive to hire HR headhunter to find people. – Peter Penzov Feb 2 at 12:22
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    This is so, so far from reality that it's confusing to "discuss the details" with the OP. – Fattie Feb 2 at 14:06
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A salary + equity in a startup has about as much value to me as the salary.

The reason is that most startups fail. That means that I am not just out of a job and have to go jobhunting with a not too glorious previous employment, it also means my equity won't be worth anything. Or even worse: If the owners didn't know what they were doing when they founded the company then I could even be personally liable for the debts of the company. If your startup isn't Limited Liability, then I wouldn't even take your equity if you gifted it to me.

And most of those few startups which don't fail do not become the next great industry giant either. They rather end up as small businesses which find their market niche where they make enough revenue to pay everyone's salaries but not enough to make any remarkable profits beyond that. In that case my equity could be very hard for me to monetize, because even though it might have a theoretical value, it's not that anyone would buy it off of me.

So whether or not my equity in the company will end up giving me any value at all is a pure gamble. I can not rely on that gamble or make any personal financial decisions based on it. So I would be well-advised to ignore that equity and just look at the salary.

However, if you already hired me for a salary I consider adequate and now want to incentivize me to do good work with even more money, then I recommend you to pay me a bonus based on product success. Promise me a bonus which I receive when the product I am working on fulfills certain objectively measurable criteria which are in my power to influence. For example by giving me a small percentage of the revenue generated by the product I am making.

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  • @JoeStrazzere Yes, that would be an example of a bonus system which would also motivate me. Provided, of course that a share of the profits doesn't also involve a share in the losses :) – Philipp Feb 2 at 15:33
  • @JoeStrazzere But there is of course always the possibility that the company decides to not making any profit this year because they reinvest every dollar they make. So what I would like even more is to get a share in the revenue. – Philipp Feb 2 at 15:39
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Equity is only part of the puzzle. Alone it means nothing, and many developers I know see it as a cop out, a way to avoid paying them what they're worth.

The second you mention "equity" the first thought is usually:

Great, they don't have any budget, and I probably wont get a pay rise any time soon

Equity alone isn't enough to attract developers, you need at least 2 of the following:

  • Good Pay
  • Mission Statement
  • Equity

So if your budget is low, pair Equity with a good Mission Statement and product.

Equity alone isn't worth anything in an unproven start-up, unless the developers really believe in the company and product.

Equity should be a sweetener on top of the going rate so developers feel invested in the company. It does help with motivation, but without good pay that motivation will be short lived.

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  • I don't think high pay + equity is enough to generate motivation. No matter if you make 50k or 500k, at the end of the day nobody will be thinking "wow, I'm making a lot of dough so I better do my best at work", maybe unless a sizeable portion of that money is performance based. – Peter Feb 3 at 11:01
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I don't mean to be blunt, but this is a dreamland idea.

Nowadays: experienced developers, always and every time, get HUGE salaries and indeed they get shares, and lots of them. Every time. It's not a "special treat" these days for experienced devs to get options/shares, it's just expected.

If someone offers shares ("but no salary!") unfortunately it would just be laughable, in today's milieu.

I'm sorry to say.

It used to be that if you had - let's say - 200,000 USD cash on hand, you could maybe scrape together a prototype or something. Those days are really gone.

For non-developer-founders it is incredibly hard to get going unless you have 1/2m on hand. And then you need to nail it immediately (3-6 months) and instantly pick up some early funding.

Or it's just yet another facebook-for-cats that goes nowhere and utterly wastes the odd 100 grand.

Just to be completely direct, in this day and age:

unfortunately it is "just utterly inconceivable" that you can hire ("senior") talent by offering "shares" in some app idea. The phone rings hot day and nite with huge cash + shares offers from well-funded projects.

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    It's so rare but also so important to see lucidity like this being brought into this site. – embedded_dev Feb 2 at 14:31
  • I'll note that you function in a very specific environment. Other countries, and even other parts of the country, do not have "The phone rings hot day and nite with huge cash + shares offers from well-funded projects." – Ben Barden Feb 2 at 15:24
  • @BenBarden ; hmm, I do understand what you mean, but "startups are global". They use global talent, have a global audience, VCs are global, and so on. To make a perhaps extreme example, movies "are hollywood" (err, or these days Pixar!) The world's leading camerapersons, makeup artists, indeed actors etc don't "make less" if they happen to be from Japan, Italy, Canada or whatever. I mean, a guy from Sweden (WTF!) made the biggest sale ever in the game field; it's just a random example but you see what I mean, perhaps. – Fattie Feb 2 at 15:30
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    @Fattie I'm telling you, the world you describe is not the world that most of us live in. – Ben Barden Feb 2 at 15:49
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    guys I really appreciate that but the question is specifically about software developers – Fattie Feb 2 at 16:06
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I would encourage you to read a book like Punished by Rewards by Alfie Kohn or Why We Do What We Do by Edward Deci. To summarize, it's highly questionable the extent to which a financial upside beyond a pay that people consider fair and adequate leads to additional motivation. This is particularly the case if people do not feel that they have much direct impact on the profits of the company.

More generally, "if you do x, I'll give you y" type schemes do not work - they do not lead to people being more motivated in the long-term and they can lead to all kinds of unintended side effects (such as creating an incentive to cheat or game their metrics rather than getting their work done). Factors like a sense of purpose or meaning in their work, being given high degrees of autonomy, and a sense of competence or mastery (i.e. tasks that are challenging but not so challenging that people feel like they can't do it) are far more important in whether people are motivated.

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As an option,you could go with a basic salary plus what is called profit sharing. By doing this, the talent you attract will know that the more money the company makes, the more they make by default without giving away equity.

Unfortunately, money isn't the only thing that motivates people, so you would have to take a long hard look at the type of company culture you create as it's much harder to change that once it's embedded in the company. For example: Would you be offering flexible hours or would all hour be fixed? Would you allow remote working or would everyone be required to be in the office? Further more, you might want to consider what other benefits you are willing to offer any people that do join your company.

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