Early employees — the first ten to fifteen people to join a startup — take on meaningful risk for a below-market salary. Compensating them appropriately in equity is both fair and strategically important: key early hires who feel well-treated become long-term stakeholders; those who feel under-compensated become liabilities. Getting the number right requires understanding what the market pays, how dilution works, and what vesting structure protects both parties.
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The amount of equity an early employee receives typically decreases as the company matures and de-risks. Employee #1 (before any funding, no product) might receive 1-3% on a four-year vest. Employee #5 (post-seed, working product) might receive 0.25-1%. Employee #15 (Series A, real revenue) might receive 0.05-0.25%. These ranges are rough market norms — actual grants depend on role seniority, market conditions, and the company's current valuation.
| Hire | Company stage | Typical grant |
|---|---|---|
| Employee #1 | Pre-funding, no product | 1-3% |
| Employee #5 | Post-seed, working product | 0.25-1% |
| Employee #15 | Series A, real revenue | 0.05-0.25% |
Rough market norms — actual grants depend on role seniority, market conditions and the company's current valuation. All on a four-year vest.
Founders typically own common stock; early employees typically receive stock options (the right to buy shares at a fixed price in the future) or restricted stock awards. The tax treatment differs, the vesting mechanics differ, and the risk profile differs. Early employees who negotiate for actual shares rather than options are taking on more risk but also more upside — worth understanding before setting grant terms for either side.
Different instruments, different mechanics
Founders typically hold common stock; early employees typically receive stock options or restricted stock awards. The tax treatment, the vesting mechanics and the risk profile all differ — an employee who negotiates for real shares instead of options takes more risk and more upside.
Early employee equity comes from the reserved pool — shares set aside at founding for this purpose. If the pool is 15% and you issue 2% to an employee, the pool shrinks to 13%. This is why sizing the pool correctly at founding matters: running out of reserved equity mid-hiring phase means diluting existing founders to issue new grants. Equafy tracks the reserved pool as a live metric — you always know how much is available before making an offer.
How the pool shrinks
If the pool is 15% and you issue 2% to an employee, the pool drops to 13%. Running out mid-hiring means diluting existing founders to fund the next grant — which is why sizing it correctly at founding matters.
The same four-year/one-year cliff standard used for founders. This aligns incentives and is familiar to both employees and investors.
Stock options are most common in venture-backed startups for tax reasons. Early-stage pre-funding companies sometimes issue restricted stock directly. A startup lawyer should advise on the right structure for your jurisdiction.
Yes. Every grant from the reserved pool represents dilution for all existing shareholders. A properly sized reserved pool manages this expectation from the start.
Equafy tracks your reserved pool in real time — so every new hire offer is backed by accurate, live cap table data.
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