Something has bothered me for some time and its just now starting to get talked about. Below is not a rant, but rather an exercise in thinking about fairness in compensation.
Founders receive huge amounts of equity in the companies they start, yet over time as more and more employees join on and work incredibly hard to help grow the business into a successful enterprise the percentage ownership (cap table) doesn’t reflect adequate compensation. Why is it that an employee that joined just a few months or a year after the founder receive orders of magnitude less equity – and cash after a liquidity event – than the original founders?
Does it really matter if you were there first and if it was your idea to begin with? If so, how important and impactful is it? Millions of dollars? Billions of dollars worth of difference?
Yes, founders do take inordinate amount of risk in starting a new venture and they should receive compensation to reflect that. But when we are talking about $billion+ outcomes we then start to talk about income inequality on absurd levels. The difference between a founder receiving $1 billion or $2 billion is not the same as taking that extra $1 billion and spreading it over 100 or 500 employees – that which makes quite a bit of difference in each of those people’s lives.
The fact is early and middle employees are hugely important to the success of a startup and should be compensated accordingly. More so, they might even be vital to the company’s success, such as a Director of Sales or VP of Engineering may be in helping a gangly startup grow up into a mature and profitable company.
A recent podcast from Andreessen Horowitz covers this issue, and touches on how founders can think about structuring their equity grants a bit differently so that they can appropriately compensate early and later employees.
Anyway, listen to the podcast as it covers a lot of points in this touchy subject.