Following an earlier discussion on HN about whether founders ought to make many times the return that their early employees get from a startup, here's a level-headed post by Jason Cohen proposing a straightforward approach for calculating how much shares an employee should be getting:
When someone works for less salary than they deserve (meaning: what they could make elsewhere), I think of that as a cash investment they’re making in your company.
Jason then proposes treating this investment like any other investment. After all, if the new hire had demanded their market salary, you would have had to raise that cash from an investor. So, use whatever metrics you've got in place to calculate the values of angel or VC investments, to value this employee's investment.
Of course, one small hole in this is that startups are not just "a market job". They're significantly more interesting, you learn more, you get more introductions to interesting people, etc. Startup jobs are inherently more valuable than "market jobs" working at a mindless corporation. So, one could certainly argue that you shouldn't compare the employee's new salary to their market value, but to a slightly discounted value.
That said, this model is a great starting point and can help drive discussions towards something objective and rational, rather than towards an emotional discussion of "how much percentage should I get?"
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