Compensation & Benefits
Compensation is an important issue for both companies and team members in the start-up world. Companies must offer compensation packages that are attractive and competitive, while team members must be willing to take on a certain amount of risk in exchange for the opportunity to be part of something new and exciting. With the right balance of risk and reward, start-ups can attract and retain top talent and continue to grow and innovate.
OCV companies should want to hire people willing to take risks and value their equity compensation as owning a piece of a business with tremendous potential. We want a team committed to the company’s success, and are not solely motivated by a paycheck.
Exempt vs. Non-Exempt Status
In the US, employees are classified into two categories, exempt and non-exempt, based on the overtime pay and minimum wage laws, which can also vary by state. The primary difference between these two categories is how they are compensated for their work.
Most OCV company employees during the first 18 months will likely have exempt status. Founders should pay attention to any admin hires like Executive Assistants (EAs).
Exempt employees are those who are exempt from the overtime pay and minimum wage laws. They are typically salaried employees who are paid a fixed amount regardless of the number of hours worked. Exempt employees are not entitled to receive overtime pay when they work more than 40 hours a week.
Common examples of exempt employees include executives, professionals, and administrative employees. Employers are not required to keep track of their hours worked or pay them overtime.
Recommended employee benefits
Specific details on worker classification guidelines and payment terms for contractors are here.
Annual Salary
Yes
Yes
No
Bonus*
No
No
N/A
Healthcare**
Premium Health Plan, Dental, and Vision The company pays 85% employee's premium
The company pays 50% for the dependents premium
No additional coverage if National Healthcare is available
Select a mid-level plan if National Healthcare is not available
No
Paid Time Off
15 days accrued
Statutory compliance based on minimum local requirements for paid time off (which may accrue) and local holidays.
Can request additional paid time off (not accrued) subject to managerial approval.
No
Remote Work
Yes
Yes
Yes
Home Internet Reimbursement
Yes
Yes
No
Equipment
Yes
Yes
No (leasing available)
*Option for the company's CEO to implement the bonus plan after the external funding round. Each company should establish an annual performance and compensation review process.
**The company pays for healthcare plan premiums; there may be additional copays or out-of-pocket costs to employees and dependents. See details for country-specific compliance here.
Cash compensation
OCV companies have to manage their burn rate and cannot always offer salaries that compete with a larger, established company. OCV companies offer stock equity incentives, opportunities to learn the latest technologies, and rapid career advancement. Hiring managers should look for team members who are willing to take a certain amount of risk when working for a start-up. Team members must weigh the risks and benefits of working at a start-up and decide if such an opportunity is right for them.
Do not discuss one person’s compensation based on someone else’s compensation. There is no “fairness” in compensation, only the market rates. Consider adding a compensation page to your company handbook outlining your policy. Appropriate compensation based on location is challenging to implement and maintain, but ultimately, it will enable you to hire the best talent for your team regardless of location.
Pay location-based market rates
Use location-based market rates for compensation. Paying based on regional rates is more standard than paying a global compensation rate. U.S.-based roles tend to have a higher percentage of equity in the total compensation package.
Some companies advertise compensation packages at a global rate, which may send a message that the company can't hire anyone who lives in high-cost-of-living areas, but represents above-market compensation to people in the rest of the world. When companies post their roles with salary transparency and pay the same everywhere, it may appear simple, but a one-size-fits-all approach has limitations. Great candidates who live in high-cost-of-living areas may be unaffordable to compensate when compared to a global rate, and can negatively impact staffing choices.
Use these benchmarking tools to better understand fair market compensation for salaries:
Betts (for GTM / Sales roles)
Pay in local currency
Pay employees and contractors in their local currency to avoid situations of adverse exchange rate fluctuations for the employees. Exchange rate management is not a core activity for scaling the business and will create an unnecessary distraction for the management team down the road.
Equity compensation
Use the Company Equity Grant Benchmark Tool to determine equity grants.
Equity compensation aligns incentives between the company and the employee base. It can serve as a great tool to attract and retain talent. Full-time employees should receive equity incentives in the business they’re helping to build. Equity is not available for team members hired as contractors.
Equity grants should also consider the remaining options pool available for candidates and the overall capitalization table of the company. The number of shares that can be granted to employees is typically determined by an options pool established during the entity formation phase of the company.
Cash and equity compensation should be considered holistically as part of the overall compensation package. Determination of equity considerations for employees is not an exact science but equity grants should reflect a candidate’s:
Role & responsibility at the company
Experience level
Market indications for comparable positions given the stage of development of the company.
U.S. employees typically receive ISOs. Non-U.S. employees and contractors typically receive NSOs.
Annual performance review and raises
Management teams are responsible for developing an annual review process. Compensation increases should be based on market rates for roles rather than inflation-based adjustments.
Market adjustments naturally incorporate inflation to some degree while also considering broader economic factors that affect compensation—sometimes even offsetting inflation increases. For example, inflation may be high while market rates remain stable. Companies should strive to maintain parity with overall market compensation levels.
Therefore, salary adjustment discussions should focus on market rates rather than changes in employee cost of living. When a founder determines that a role merits a market-rate increase based on performance or requires adjustment for market parity, they should notify the accounting team and update the necessary changes with the company's EOR and payroll provider.
Tracking employee PTO
Employees engaged through the EOR accrue PTO with minimum amounts determined by local laws. You can view the required PTO for each location in your EOR platform. The EOR requires an accrual-based PTO policy, and each company must establish its own PTO policies that comply with the local statutory requirements outlined by the EOR.
Managers can approve time off that has not yet accrued by the employees, effectively providing more than the statutory amounts of PTO. This is done on a case-by-case basis, and the PTO will need to be approved and tracked in your EOR platform.
Companies should consider PTO accrual as part of cash flow planning and emphasize the importance of tracking PTOs in the EOR platform with their team members.
Founders, please see detailed instructions on how to track PTO here.
Unused, accrued PTO is paid out according to local regulations when an employee leaves or the company winds down.
PTO carry-over and year-end policies
PTO carry-over rules vary by state and impact final payout obligations:
California, Montana, Nebraska, and Colorado: Unused PTO carries over indefinitely and must be paid out in full at termination.
All Other States: Unused vacation from the previous year is forfeited at year-end and will not be included in final payouts. Founders should clearly communicate carry-over policies to employees during onboarding and in the employee handbook.
Contractor PTO policy
Generally, contractors are not eligible for paid time off.
Immaterial time periods are generally permissible, e.g., half-days, as part of normal remote work flexibility. Material time-off should be discussed and agreed with founders in advance, and the invoice rate may need to be adjusted accordingly, especially if billed as a weekly or monthly rate.
Last updated
Was this helpful?