The ability to offer stock options is absolutely essential for startups. They convince talented people to join when the startup is unlikely to be able to match the high salaries that larger, more established tech firms can offer.
However, it is a complex business to develop a competitive stock option plan. Fortunately, London-based VC Index Ventures today launches a handy web app to calculate all of this, plus new research on how startups are compensating their key hires in Europe and the US.
OptionPlan Seed, is a web application for early stage founders designing ESOPs (Employee Stock Ownership Plans). The web application is based on Index’s analysis of early-stage option grants, using data from more than 1,000 startups.
The web application covers a variety of roles; 6 different levels of mapping reference points; calculates the potential financial advantage for each team member (including taxes); and is adjusted according to policy frameworks in the US, Canada, Israel, Australia, and 20 European countries.
It is also based on OptionPlan for Series A companies that Index released a few years ago.
As part of its research for the new tool, Index said it found that almost all early-stage employees receive stock options. However, while this reaches 97% of technical hires in early stage startups and 80% of junior non-technical hires for startups in the US, in Europe only 75% of technical hires receive options , falling to 60% for junior non-technical companies. hires.
That said, Index found that stock option grant sizes are increasing, particularly among startups “with a lot of technical DNA and weighted toward the Bay Area.” In less technological sectors, such as e-commerce or content, the size of the grants has not changed much. Meanwhile, the subsidies are even higher overall, as seed valuations have risen in recent years.
Index found that ESOP size is increasing in the early stage, following a faster hire rate and higher grants per employee. Index recommends that an early stage ESOP size be set at 12.5% or 15%, rather than the more traditional 10% to retain and attract staff.
The research also found that the size of the seed fundraiser and valuations have doubled, while valuations have increased 2.5-fold in Europe and the US.
In addition, starting salaries have “drastically increased” with average salaries increasing by more than 60%. High-tech positions in early stage startups in the US now earn an average salary of $ 185,000, an increase of 68% in 3 years and can grow to more than $ 220,000. But in Europe, the biggest pay increases have been for junior positions, both technical and non-technical.
That said, Index found that “Europe’s technical talent continues to have a compensation gap” and early-stage technical employees in Europe still receive an average salary between 40% and 50% less than their US counterparts. In fact, Index found that this gap had widened since 2018, “despite a narrowing of the gap for non-technical roles.”
The index also found that wage variations in Europe are “much wider than in the US,” reflecting high-cost centers like London, versus lower-cost cities like Bucharest or Warsaw.
The war for talent is now global, and the compensation gap for technical hires drops to 20-25% compared to the US.
Index’s conclusion is that “ambitious seed founders in Europe should raise the bar in terms of who they hire, particularly in technical roles,” as well as target more experienced and higher caliber candidates, larger fundraisers to be competitive in wages.