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Getting Paid in Equity: A What to Do Guide

Equity-based pay is often used by the founders of young startups who want to grow their businesses but cannot offer big salaries to qualified professionals. Typical arrangements seek to either partially or fully compensate service providers with stock in the company in exchange for hard work.

Depending on where you are at (career- and age-wise), as well as where the company is at –and where it is going– this offer could either be an amazing opportunity, or it could be a total waste of your time and potential.

Below are some helpful tips and suggestions to keep in mind when contemplating whether or not to take an equity-based position.

Gauge The Company’s Ability To Sell

Equity compensation can be a lucrative investment of your time if you work for the right business. When deciding whether to accept such an offer, you must perform a sort of risk assessment of the company, including their ability to become profitable, access funding (if necessary), and eventually, to sell.

In business, the most common type of risk analysis one can perform on a company is known as the SWOT analysis. QuickMBA defines a SWOT analysis as examining an organization’s Strengths, Weaknesses, Opportunities, and Threats. A firm’s strengths and weaknesses are determined by factors inside the company, whereas opportunities and threats refer to environmental factors (such as competition and alternatives) outside of the business. After fleshing out this analysis, you should have a better idea of the risk level of the company offering you the position.

You are even are justified in requesting to see some financial reports in order to judge the health of the organization. Run from any executives offering equity-based pay who have a problem showing candidates evidence of company financial success, as they likely have something to hide.

Has This Company Been Funded?

Someone writing a check

As part of your risk assessment of a company, determine whether the company has been funded. Funded companies are typically a safer bet than bootstrapped ventures for two important reasons. First and foremost, a funded company has more money to work and compete with. Developing a cutting edge product and marketing it effectively is not a cheap process, and having investors to make sure the bills get paid is a great asset for any new business to have.

Second, funding is a seal of approval from a professional investor. This is not to say that all funded companies are bound for success, however venture capitalists are trained to assess businesses by their strengths and weaknesses. If the company was funded, it mean that a professional evaluation was performed on every aspect of the start up and it was determined that they were likely to do well.

Sweat Equity Or Equity With Compensation?

People Shaking Hands

The arrangement of pure equity without additional compensation is considered a fairly risky agreement. The potential pay-out could be quite large since you will likely be offered significant equity if no money is involved. However if the company does not succeed, or takes very long to start making money, you might squander years of time on a botched investment.

A less troublesome arrangement is that of equity with compensation. In this scenario, your expected salary is reduced and augmented with equity. Online start up resource gives an example of this, stating that if your services are worth $80,000/year, you might be offered $60,000 in salary and $20,000 worth of equity.

Equity As a Performance Incentive

Incentives at Work

Equity pay can be an powerful motivating force for those working in areas that directly affect the revenue of the business. If your special skills and knowledge have an impact on the sales of goods or services, an equity stake with compensation (as discussed above) is sometimes preferable.

The harder your work the more your equity will be worth. At a certain point, your stock might be valued at far more than your full salary could have ever provided you.

Is The Equity Appropriate For Your Position?

Person Cashing a Check at an ATM

Another way to sniff out a good deal is to see if the equity you are being offered is appropriate for your position. Exceptionally high offeres may be indicative of a hurting company looking to lure in a rescuer without having to pay them money.

Guy Kawasaki, a technology venture capitalist, compiled a list of typical equity amounts for common positions. These are:

If your equity offer falls within these figures, Kawasaki’s research would deem it a reasonable offer. This is not to say you shouldn’t still proceed with caution, however it does give you guidelines to help you spot unreasonable or suspicious requests.

Vested Equity

Stacks of Money

Before accepting an equity-based pay arrangement, you should determine if the equity is vested, or granted all up front. Vested equity is paid out in increments over time. If you are to receive a 2% equity stake vested over the course of four years, you might receive 0.5% per year along with your regular pay. reports that this strategy is often used as an incentive to keep employees in their positions for that period of time, with the promise of more equity as a motivating factor to continue working hard.

In order to intensify this motivation, some companies have even taken to offering scaling equity, such that you earn progressively bigger stakes per year until you earn your total amount. Under this arrangement, a 4.5% stake vested over two years might be paid out as 0.5% in the first year, 1% in the second year, 1.2% in the third year, and 1.8% in the fourth year.

What Stage Are You At In Your Career?


Equity-based pay (especially full equity pay), must be considered in the context of your current career. If you are a young professional who has the time and energy to work lots of overtime hours to effectively grow your equity stake, this sort of pay arrangement might be best for you.

Conversely, those have already established themselves in their careers and earn strong salaries might have trouble taking a serious pay cut and working more hours for an equity share. Since equity is only a wise investment if you plan to put long, hard work into raising its value through your actions, these sort of arrangements are befitting of those seeking to establish their career and begin building wealth.

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  • sara

    great post!

  • Max

    Article is nicely done and well written. Good starting points of information

    • Emma Siemasko

      Glad you found this helpful, Max.

  • jk

    thanks for the great post. do you know of any books that i can get on this subject?

  • TEJ

    I know this is an old post – and I apologize in advance for the anonymity, but I have a sensitive question. I was wondering if anyone had an opinion on being offered a substantial piece of equity in a company vs. a debt that is owed. For example, forgiving a $100,000 debt from one company in return for on-going equity in a sister company. My dilemma comes from the following. I am asked to forgive a $100k debt and in return I will be given 49% equity of a second company for the cost of “$1 (one dollar)” as opposed to a transfer of $100k into the new company (even on paper). It seems like giving up the $100k might be ok – but my concern is if the purchase amount (on paper) is only $1 it carries less weight should things go wrong than if it was recognized as $100k. I hope that makes sense. Thanks in advance!

    • Emma Siemasko

      Hi TEJ, thanks for the comment. This post is meant to give tips and guidance, but we’re not experts, and I don’t think we can adequately counsel you on your individual situation. Here are a few ways to get answers: Ask your question on Quora or reddit, call a business lawyer, visit a Small Biz Development Center, or find an expert on Hope that helps!

  • ndgal

    Great post! I am handing it out to possible contractors or people that may come on board to help us grow and assess the risk/reward!

    Thank you!

  • Chad Hull

    This is an excellent article and very helpful for me as I move forward. 17 year veteran in the Architectural Standing Seam Metal Roof/Wall Panel Industry and made exceptional income for most of my career. I left that company for another and found my division dismantled after 1 year. Now, my biggest challenge is companies do not pay near what I made previously and I am thinking with the right company, equity might be a way to help decrease the gap between what I previously earned and starting over. Thank you again for this very simple and easy to read article.

  • Chad Hull

    Thank you for posting this very simple and easy to read article. I am a 17 year sales exec. in the Architectural standing seam roof/wall panel (coil/sheet) industry and worked for one organization for 16 years, earning an exceptionally high income as a revenue producer. I left that company for another opportunity only to have my division dismantled after 1 year. Now, my largest hurdle is finding another company that pays even 50% of my previous compensation so I am hoping with the right organization, equity may help close the gap between what I previously earned and what is being offered. Obviously looking at small to medium privately held companies as well as relatively new entries into the industry. Thanks again for posting this even if it was in 2010, very helpful.

    • Emma Siemasko

      We’re so glad you found the article helpful. Yes, it’s a little old, but the information is still extremely relevant.

  • Jackie

    Good Post. Can you explain to me what it’s called when equity is given to you versus an option to purchase. I am a lead iOS developer and I am currently taking a salary about 30K below market rate at my job, I was offered 0.5% equity vested over 4yrs to make up for this. However I read the contract more in detail and it says the Company shall grant you an option (the “Option”) to purchase 44,436 shares of the Company’s Common Stock equivalent to .5% of the Company’s outstanding capital stock. I am also the company’s first hire, is this normal that I should be purchasing the stock?

    • Emma Siemasko

      Hi Jackie. To be perfectly honest, I have no idea. I think you should consult a business lawyer on this one.

  • Equity Research Lab

    !!!!!!!!! Great piece of writing, I really liked the way you highlighted some really important and significant points. Thanks so much, I appreciate your work.!!!!!!!!!
    Equity tips

  • Anamika

    Nice Article Has Shared This Blog .thanks for sharing

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