How to Pay Your First Ten Employees

How to Pay Your First Ten Employees

Deciding what to pay your first employee is one of the most concrete decisions you make as a founder. It transforms your idea into a real company with real obligations. Yet most founders treat it like a negotiation in a bazaar. They guess a number and see if the candidate accepts. This is a mistake. Your first compensation decisions set a precedent that can be hard to undo.

Big companies have compensation bands and entire departments to solve this problem. You have a spreadsheet and a headache. The goal is not to replicate their bureaucracy. The goal is to create a simple fair and transparent system that helps you attract the people you need.

You cannot compete with Google on cash. You should not try. You are competing on a different axis. You are offering ownership and impact. Your compensation plan should reflect that.

Cash and Equity

You only have two levers cash and equity. Cash pays the bills today. Equity represents a shared belief in the future value of what you are building. How you balance these two levers says a lot about the kind of company you want to be.

If you offer high cash and low equity you signal that you are a relatively safe bet. You will attract people who value stability. If you offer low cash and high equity you signal that you are a high risk high reward venture. You will attract missionaries who are willing to bet on your vision.

There is no single right answer. But you must have an answer. Your philosophy on this balance is a core part of your company culture. The simplest starting point is to offer fair market cash and meaningful equity.

A Simple Salary Formula

Fair market cash does not mean paying San Francisco salaries to everyone. It means being rational. Pick a single high cost market as your benchmark. San Francisco is the default. Then adjust for location and experience.

Here is a simple formula:

Base Salary = SF Market Rate * Location Multiplier

To find the SF market rate for a role use data from sites like Levels.fyi Pave or OpenComp. Look at what seed stage or Series A companies are paying. Do not look at FAANG salaries. You want the market rate for startups.

Next apply a location multiplier. You can create your own simple tiers. For example:

• Tier 1 (1.0x): San Francisco New York
• Tier 2 (0.9x): Austin Seattle Boston
• Tier 3 (0.8x): Most other US cities and Western Europe

This is not perfect but it is a system. It is defensible and fair. When you make an offer you can explain the formula. Transparency builds trust faster than anything else.

Allocating Your Equity Pool

Most seed stage companies set aside an option pool of 10% to 15% of the company’s stock. This is what you will use to hire your first ten or twenty employees. How you spend it is critical.

Your first few hires are taking a huge risk. They are joining something that is more of an idea than a company. Their equity grants should reflect that. The person who joins as employee number one deserves significantly more equity than employee number ten. This is because their risk is higher and their impact on the company’s foundation is greater.

Here is a rough guide for your first ten hires:

• First Engineer: 1.0% - 2.0%. This person is more like a cofounder than an employee. You can read more about what to look for in this role here https://journalofme.com/blog/your_first_engineer.
• Hires 2 to 5: 0.5% - 1.0%. These are your founding team members. They will build the core product and shape the culture.
• Hires 6 to 10: 0.2% - 0.5%. These hires join a company that has some momentum. The risk is lower so the equity is too.

These are fully diluted percentages with a standard four year vest and a one year cliff. The numbers are less important than the principle. The principle is that risk and reward should be proportional.

The Conversation Matters Most

You can have the most perfect spreadsheet in the world but it means nothing if you cannot communicate it. When you make an offer do not just slide a number across the table. Explain the philosophy behind it.

Walk them through your salary formula. Show them how you arrived at the number. Be transparent.

Explain the equity. Do not just say you are offering 50,000 options. Tell them what percentage of the company that represents today. Explain the strike price and the vesting schedule. Help them understand what it could be worth if you all succeed.

Your job in the offer conversation is not just to close a candidate. It is to onboard them into the mission of the company. You are not buying their time. You are inviting them to build something with you.

An early stage compensation plan does not need to be complex. It just needs to be thoughtful. Create a simple system be transparent about it and focus on finding people who are excited by the future you are building together.

— Rishi Banerjee
September 2025