Compensation
๐Ÿ’ฑ

Compensation

๐Ÿ”–ย Contents on this page:

  • ๐Ÿฆย Compensation basics
  • ๐Ÿ’ฐย Compensation break-down
  • ๐Ÿ’ธย 1. Salary
  • Salary averages within b2ventureโ€™s portfolio (stage and location agnostic)*
  • ๐Ÿ“ˆย 2. ESOP / VSOP
  • ๐Ÿปย Compensation in a challenging market environment
  • ๐Ÿ“šย Helpful tools to calculate ESOP and compensation

๐Ÿฆย Compensation basics

  • It often helps to obtain market benchmarks (in similar stage & geography) - check out some benchmarks on Angel.co, Glassdollar, or our analysis below.
  • Internal consistency: Be aware that at some point (probably not at the very early stage) employees within the organization find out how much their teammates earn, increasing the importance of a justifiable compensation plan
  • Employee background & resulting preferences: Keep in mind that risk appetite differs between employees based on their character but also their living situation. Take the example of a family mother that has to pay a mortgage vs. an independent graduate with no debt.
  • The earlier the startup, the more pronounced employee's entrepreneurial tendencies need to be.
๐Ÿšจ
A compensation package normally consists of two components: Salary (fix + bonus) + Stock Options

๐Ÿ’ฐย Compensation break-down

๐Ÿ’ธย 1. Salary

  • Especially with early stages companies, salaries should be able to cover immediate and rather basic needs. Anything beyond that should be covered by stock options.
  • It often helps to relate pay raises to funding rounds
  • Founder salaries vary from zero (however, less likely nowadays) to EUR 200k (in case of scale-ups)
  • Senior hires over time often earn significantly more than founders (we have seen compensation requests exceeding EUR 300k - ignoring any stock options)
โ€ฃ

Salary averages within b2ventureโ€™s portfolio (stage and location agnostic)*

๐Ÿ“ˆย 2. ESOP / VSOP

๐Ÿ’ก
ESOP programs are crucial to acquire and retain top talent. While they motivate employees and create a sense of unity and mission moreover, they should be treated as a precious currency. If not used wisely and thoroughly, they might evolve into a very expensive tool.

Compensation Philosophy: Stock option socialism vs. Capitalism

There are different schools of thought in the fields of ESOP distribution approaches. Some founders allocate stock options to every single employee and others do not allocate any at all. Looking at our portfolio, all our companies run some kind of employee incentivization program - for very good reasons. However, to varying extents.

๐Ÿ’ก
In the interview process when negotiating compensation, demonstrate the potential value appreciation after a future funding round and emphasize the upside scenarios. BUT be careful not to over-hype as this can damage your credibility and set unrealistic expectations.

It often helps converting the options into yearly attributed โ‚ฌ-values, assuming different valuation scenarios.

  • The stock option % designated to different positions very much depends on
    • Seniority, uniqueness and relevance of the employee
    • Phase and thus valuation of the company (the later the smaller the %)
    • It is thus difficult to attribute certain stock option packages to different roles. For specific advice you should get in touch with us and we can provide you with some more specific benchmarks. A first guiding rule is that the monetary yearly stock option value normally amounts to 40-80% of salary - again this depends on role and seniority and employee preferences.

  • We urge founders to set the strike price (the employee option purchase price) as low as possible, as this maximizes the upside per stock option.
  • Generally, we deem a 4 year vesting schedule, including a 1-year cliff, as suitable. This is very much in line with market standards.
  • For senior (mostly C-level) hires, including founder vesting, we more often see a so-called loyalty cliff of two years. In this case, an employee-initiated leaver within two years after investment corresponds to a Bad Leaver.

๐Ÿปย Compensation in a challenging market environment

In a challenging market environment, start-up compensation can become a complex issue. With increased competition, salary development may be affected as companies strive to attract and retain top talent despite limited resources. Start-ups may consider implementing measures such as founder salary waivers or deferrals, especially in the early stages, to manage financial constraints.

It's also crucial to manage expectations, particularly concerning the โ‚ฌ value derivation of stock options. Often, the last post-money valuation no longer reflects the current reality, which can inflate option prices. Companies should ensure that the potential value of stock options is communicated transparently and realistically to avoid misunderstanding and disillusionment.

๐Ÿ“šย Helpful tools to calculate ESOP and compensation

Compensation

Salary Report DE | Fabian Figueroa-Authenac | 23 comments

๐Ÿ’ฐ ๐—ง๐—ต๐—ฒ ๐—ฎ๐˜ƒ๐—ฒ๐—ฟ๐—ฎ๐—ด๐—ฒ ๐—™๐—ผ๐˜‚๐—ป๐—ฑ๐—ฒ๐—ฟ'๐˜€ ๐—”๐˜€๐˜€๐—ผ๐—ฐ๐—ถ๐—ฎ๐˜๐—ฒ ๐—ฒ๐—ฎ๐—ฟ๐—ป๐˜€ โ‚ฌ๐Ÿฒ๐Ÿฒ,๐Ÿฌ๐Ÿฌ๐Ÿฌ ๐—ถ๐—ป ๐—ฐ๐—ผ๐—บ๐—ฝ๐—ฒ๐—ป๐˜€๐—ฎ๐˜๐—ถ๐—ผ๐—ป. Some friends and me collected real compensation data from 110+ professionals across Germanyโ€™s startup scene to shed light on two of the most influential roles โ€” all captured in the ๐—™๐—ผ๐˜‚๐—ป๐—ฑ๐—ฒ๐—ฟ๐˜€ ๐—”๐˜€๐˜€๐—ผ๐—ฐ๐—ถ๐—ฎ๐˜๐—ฒ & ๐—–๐—ต๐—ถ๐—ฒ๐—ณ ๐—ผ๐—ณ ๐—ฆ๐˜๐—ฎ๐—ณ๐—ณ ๐—ฆ๐—ฎ๐—น๐—ฎ๐—ฟ๐˜† ๐—ฅ๐—ฒ๐—ฝ๐—ผ๐—ฟ๐˜ ๐Ÿฎ๐Ÿฌ๐Ÿฎ๐Ÿฑ. ๐Ÿ“Š Key numbers: - ๐—™๐—”: โ‚ฌ56,000 cash + โ‚ฌ8,750 equity (median) - ๐—–๐—ผ๐—ฆ: โ‚ฌ70,000 cash + โ‚ฌ15,750 equity (median) - ๐—–๐—ผ๐—บ๐—ฝ ๐˜€๐—ฝ๐—ฟ๐—ฒ๐—ฎ๐—ฑ: up to โ‚ฌ50,000 difference for the same role โœ… If you're negotiating, hiring, or just benchmarking โ€” this report is for you. Thanks to everyone who contributed to this fresh perspective on startup compensation. ๐Ÿ‘‰ You'll find the report linked in the first comment. Justus Kneissle Sebastian Luft five.degrees zoran kokolanski | 23 comments on LinkedIn

Salary Report DE | Fabian Figueroa-Authenac | 23 comments
Figures

Instantly compare your compensation policy with the competition With a tailored app, save time and effort by visualising, analysing and comparing your compensation data among all markets or just your own.

Figures
Ravio - Compensation benchmarking in real-time

Ravio allows you to understand compensation in your market in real-time. Make smarter salary, equity and benefits decisions without touching a spreadsheet.

Ravio - Compensation benchmarking in real-time

ESOP / Stock options

Employee Participation Plan Templates

These high quality templates are made in partnership with the best and most experienced law firms in Europe. The templates are here to guide you through all of the steps necessary to set up your employee participation plan. On top of that, they serve as an educational tool, helping you familiarize yourself with the terminology and provisions of participation plans.

Employee Participation Plan Templates
HV ESOP Model

Overview THE HV ESOP MODEL How To - Make a copy of this Google Docs - Enter your parameters in the ESOP Setup sheet - Use Calculator for HR to determine individual allocations - Communicate to employee via the Sheet for ...

HV ESOP Model
Rewarding Talent | Index Ventures

A guide to stock options for European entrepreneurs

Rewarding Talent | Index Ventures
OptionPlan | Index Ventures

Entrepreneurs know how important stock options are for hiring and retaining the best talent. But to create an effective option plan you need to know how much to award to each team member. We compiled the largest ever set of benchmark data, comprising over 20,000 option grants from more than 1,650 startups across the US and Europe.

OptionPlan | Index Ventures
Billie Model for ESOP Germany

Using PPR to deliver employee share ownership plans in Germany

Billie Model for ESOP Germany

Thoughts? Feedback? Something missing? Please let us know: andreas.goeldi@b2venture.vc