In his book describing Google’s People Operations called Work Rules!, Laszlo Bock presents this chart to describe the difference between the way many companies think about talent today, as a normal or Gaussian distribution, and how Google thinks about it, as a power law. It’s the most provocative idea about employee compensation I’ve found.
As Daniel Kahneman showed in Thinking Fast and Slow, humans think in normal distributions. Most people will near the mean and a few outliers exist at the best and worst end of the spectrum.
The median equity stake of US venture-backed post-Series A CEO has increased from 15% to 21%, a 40% increase in five years. This trend is also manifested in Series Bs, but as the chart above shows, post-Series C and D, total founder/CEO equity positions have remained constant.
Meanwhile the equity stakes of founding VP of Engineering and VP of Product have remained relatively constant throughout the same five year period across all stages of company.
Earlier this week, I wrote about the increase in cash compensation and decline in equity grants to VPs of Engineering and Product in startups. I received a lot of comments about the analysis, and in particular hypotheses to explain the data. I dug a bit deeper into the data set to find an explanation.
Founding employees keep more equity today than ever through the Series A and Series B. On average, founders retain 30-33% more equity than 4 years ago through those first two rounds of institutional investment.
Since 2008, there has been a secular trend to increase cash compensation and decrease equity to startup management teams. Tho two tables below tell the story for VPs of Engineering (VPE) and VPs of Product (VPP) across the US broadly and in the SF Bay Area.
VPEUSSF Cash+10%+16% Equity-19%-17% VPPUSSF Cash+26%+8% Equity-31%-25%
In the past 5 years, VPEs have benefitted from a 10 to 16% increase in their cash compensation, but have seen their equity grants fall by 17-19%.
There’s an interesting phenomemon occurring in founder compensation for post-Series A companies: founding CEOs are swapping cash for larger equity stakes in their companies. Founding CEO salaries, post Series A, have fallen by about 24% while founder equity has increased by 32%.
This trend is broad. Each year, Redpoint portfolio companies participate in a compensation survey along with the portfolio companies of about 50 other firms, totaling about 800 startups. A third party pools the data to benchmark compensation trends across the executive functions in startups (CEO, VP of Product, VP of Marketing, VP of Sales, and so on) across the different financing series, locations, development stages and founders vs non-founders.