Compensation for Startups: What to Pay from Seed to Series B
A practitioner guide to startups
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Every founder faces the same dilemma: you need exceptional people to build something exceptional, but you don't have the cash to pay them what incumbents pay. The answer is a calibrated blend of below-market cash and above-market equity — but getting the ratio right, and maintaining it as you grow, is harder than it sounds.
The Core Design Challenge
Seed (pre-revenue, £500k–£2m raised)
At seed stage, your total comp budget is brutally constrained. Most technical hires will be at 60–75% of market base salary, offset by meaningful equity — typically 0.25–2% for early engineers, 1–5% for the first senior hire in a technical domain. The candidate is betting on you. The equity is the expression of that bet. Be honest about the risk. Candidates who join at seed stage for the salary are the wrong candidates.
Series A (initial product-market fit, £5m–£15m raised)
How the Approach Works
At Series A, you can move toward 80–90% of market base salary for most roles, with equity packages reducing in size but increasing in optionality. You should also start building infrastructure: a job levelling framework, a simple salary band structure, and a compensation philosophy you can articulate to candidates. "We pay at the 75th percentile for engineering and around median for operations" is a legitimate philosophy. "We pay what we think is fair" is not.
Series B (scaling into new markets, £20m–£60m raised)
By Series B, you're hiring mid-career professionals from established companies. They will compare your package to their current employer. You need to be within 10–15% of market on base salary, offer equity that is credibly valuable, and provide benefits that don't embarrass you. If you're still paying sub-market and relying on "culture" and "mission" to close candidates, you're going to lose the talent war.
Governance and Implementation
Chaos is the enemy of fairness. Without a levelling framework, every hire is a negotiation, and negotiation outcomes are correlated with demographic characteristics in ways that create pay gaps and legal exposure. Build a simple four-level framework (Associate → Manager → Senior Manager → Director/VP) with clear competency descriptors, and anchor each level to a market data source. Radford, Mercer, or a startup-specific benchmark like Levels.fyi for technology roles.
Candidates from corporate backgrounds often don't understand equity. They see a percentage or a number of shares and don't know if it's generous or insulting. Be transparent. Tell them: the fully-diluted share count, the current valuation, the percentage their grant represents, and the vesting schedule. Give them a scenario model — "If the company exits at 3× the current valuation, your options are worth approximately £X." Candidates who understand the upside close more easily and stay longer.
Most startups don't need a Head of Reward at seed stage. You need someone who can answer basic pay questions and doesn't hand off responsibility for compensation decisions to the recruiter or the CEO's gut. By Series A, you need a reward framework. By Series B, you need a dedicated practitioner — or a fractional Head of Reward who can build the infrastructure without the full-time cost.
- →Chaos is the enemy of fairness.
- →Candidates from corporate backgrounds often don't understand equity.
- →Most startups don't need a Head of Reward at seed stage.