Startup Compensation Strategies in the Face of Tech Giants

The Challenge of Offering Competitive Salaries: Startups have long faced a challenge in offering competitive salaries compared to major tech companies. With the increasing competition in the AI race and companies like Meta and OpenAI offering salaries reaching a million dollars, the compensation gap has widened significantly. However, this does not mean that early-stage startups are doomed to fail. By developing a compensation strategy that is generous, fair, and flexible, they can offer attractive compensation packages and give themselves room to adjust their approach as they grow, according to founders and experts who spoke at TechCrunch Disrupt 2025.

Generosity in Compensation Packages: Yin Wu, co-founder and CEO of Pulley, an equity management software company, believes that startups should not try to compete with major tech companies. Generally, established tech companies and startups do not attract the same type of potential candidates. Instead, startups should be as generous as possible with their compensation packages, regardless of their inability to match the salaries of tech giants.

The Importance of Equity and Vesting Periods

Equity in Startups: Wu emphasized her strong opinion regarding equity in startups: it should be more generous than you might think. It’s unlikely, if the company actually succeeds, that you’ll look back and say, "I wish I hadn’t given so much equity to everyone who was trying to make my company successful."

Setting Clear Goals and Accountability: Randy Jacobowitz, Head of Talent at 645 Ventures, agrees with this sentiment. Jacobowitz added that when a startup aims to make a competitive offer, it must set clear goals for the person being hired to ensure that this hiring is worthy of the compensation they receive. She stressed the importance of accountability and understanding the implications of vesting cliff periods, noting that if they do not act quickly in the event of underperformance, those shares, if fully vested, will never return to the company. Therefore, clear accountability must be ensured.

Typical Equity Vesting Periods: Typical equity vesting periods in startups include a one-year "vesting cliff," where no equity vests before this date, and then the remainder vests monthly over the next three years, completing within four years. This structure encourages employee retention and protects the company from losing valuable equity if employees leave early. Source: Kruze Consulting (2024-12-04)

Flexibility of Compensation Strategies and Standard Setting

Flexibility and Fairness in Compensation Strategies: Experts also emphasized that companies do not need to finalize compensation and equity strategies from the outset. Instead, startups should ensure their approach is fair from the beginning, so that even if they wish to change later, they have the right foundation to do so without encountering legal issues or negative office politics.

Setting Standards for Compensation Packages: For Wu and her company Pulley, this meant setting standards for compensation packages. Wu stated that the company pays a specific range for each role – regardless of the potential employee’s location – and consistently builds compensation packages with equity offerings in the 90th percentile.

Components of Startup Compensation Packages: Startup compensation packages typically include a mix of base salaries, equity options, and additional benefits. Startups can offset lower base salaries by offering significant equity stakes, flexible work options, and unique benefits to attract top talent. Source: Deel. Organizations can also use customizable compensation packages that include salary, equity, and benefits to attract talent. Source: Pebl (2025-06-03).

Legal Aspects of Transparent Compensation

Avoiding Legal Risks: Rebecca Lee Wetting, founder of Epigram Legal and a fractional general counsel, explained that these standards will help companies avoid potential legal risks in the future. For example, it helps companies avoid offering unequal pay between candidates of different genders – something all companies should ethically try to avoid – but it is also illegal in states like California, as Wetting noted.

The Importance of Transparency in Compensation Plans: Having a transparent compensation plan is crucial for startups to ensure fairness and avoid misunderstandings or disappointment among employees, contributing to a positive work culture. Source: Monster (2021-11-10).

Focus on Fair Intentions and Continuous Adaptation

An Approach Based on Fair Intentions: Wetting, Wu, and Jacobowitz all agreed that as long as founders follow an approach based on fair intentions when building their compensation packages, everything else can be adjusted or changed later.

Considering Employee Motivation and Future Adjustments: Wetting emphasizes the importance of thinking not only about the process but also about the people you are trying to hire and what will motivate them to accept the offer. You don't have to achieve perfection from the start; you will likely need adjustments after your Series B funding round, and that is acceptable. But don't try to achieve absolute perfection at the beginning when hiring your first few people.

Startup Compensation Trends (Carta Report): According to Carta's Startup Compensation Report for the second half of 2024, employee base salaries remained stable or saw a slight increase, with notable changes in equity components. Equity packages have become more effective in attracting talent, and data shows that startups are focusing on offering competitive equity packages to compensate for salary differences compared to larger companies. Source: Carta (2025-03-17).