For example, Retool (https://www.ycombinator.com/companies/retool) claims to be paying $600k to someone with 6 years experience. I find this hard to believe.
Either way: A thing to keep an eye out for is startups that describe the compensation value of stock using the preferred stock price, but then issue you common stock. I've personally seen one late-stage YC company doing this - you sign the offer letter with $Xk in stock, then the paperwork shows up later with $(X/4)k in the grant.
If a late-stage startup is including stock-based compensation in this number, I think it's likely they are pricing the stock inconsistent with its class in the 409a valuation. Keep an eye out for this - I think it's a common and dishonest way to boost perceived compensation.
Startups typically give their employees stock or options, and how you price the stock has tax implications. So, the IRS strongly suggests that you do something called a 409a valuation, where a neutral 3rd-party professional accounting firm determines the value of each stock type in your company. So, if your startup valuation is Schrodinger's Cat, then the 409a process is intended to have some trusted third party open the box and see what's happening.
The problem arises when you report one valuation to the IRS, and another to employees. You can't keep two different sets of accounting books, and you can't represent two different sets of valuations at the same time. By having the third-party accounting firm issue a valuation and by issuing stock at that valuation, you're supposed to have eliminated uncertainty in your stock price - and if you haven't, then the tax treatment of your grant is at risk.
That duality is made clear when your offer letter says "$X" and the stock grant says "$<X". That's dishonest and potentially fraud.
You can say "Your stock is valued at $X based on a $Y liquidity event, and $Y is the post-money valuation of our last round of funding." But, that's not the same as "We advertise your stock as worth $X (but, shhh, that's not what we tell the government so keep it a secret)."
Can you help me understand why? I'd expect if you're granted options at a strike price of $Y, you will still make money as long as the valuation at liquidation time is more than $Y.
I made my bed and slept in it, so I have no axe to grind, but going forward I will never accept options over any other form of compensation, given a choice.
Very few non-founders do it, because it means you could end up paying tax (with the election) on shares that will never vest for you, but you do have the option to do so.
(not tax advice, we're just talking lottery ticket mechanics)
So it’s not-impossible that this is a non-appreciated offer designed to compete with/recruit away from such compensation.
Also, if I’m a candidate and the company has to tell me a number, I do NOT want to know the “total comp” because it might be 90% lotto tickets (ie startup options) and 10% base salary. Unless they explicitly break it down, I rather know the base salary
We do a quick "expected valuation" calculation on the share price and use that, instead of the 409a or the valuation. This is how I actually value it in my own head, so we just kind of canonicalize.
example: I think there's a 1% chance 1billion a 5% chance we make 100M. A 40% chance we make 20M. So that's a 23M and then I calculate the value of an option based on that.
Using that, I can then try to "match" a salary from a public company. So we set our comp as 80% of the google levels.fyi data. (Chose google bc it has the fullest levels.fyi data).
This gives us a full compensation benchmark for any roles / levels. ie a Sr engineers makes 263k. But we pay 140 in cash and 123k in equity.
Then I can explain to an engineer. We feel like we're paying you as well as you would be paid at google, but you need to believe that we have a 1% chance at a billion. 5% chance at 100M etc. They can easily tweak these expectations too so they can compare offers. If they think there is a zero percent chance of 1B they can adjust the offer themselves in their head.
I lead engineering here at Retool -- reach out to snir (at) retool if you're interested in learning more! We're hiring across several key roles, including AI, performance, our core products, and infra.
We are in-office 3 days a week, so there is some flexibility built in there, too.
