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Salaries Rise In Startups

Light Reading
News Analysis
Light Reading
7/7/2000

There was a time when joining a startup meant taking a pay cut in the hopes of striking it rich one day.

Not any more. In the past two years, the base salary of a PhD level engineer with three to five years experience has jumped from an average of $70,000 to $100,000 a year, according to Michael Welts, executive VP of Ellacoya Networks Inc http://www.ellacoya.com, a startup developing an application provisioning platform. As a result, engineers moving from a big vendor to a startup can match or even improve on their current salary.

"The dynamics of the game have really changed in the last 12 to 18 months," says Welts. "There was a lot more risk before when you had to take a cut in salary. Now there isn't as much at stake."

While the risks of joining a startup have reduced, the rewards are still there. Regular engineers aren’t going to get anything close to the fantastic packages sometimes offered to big industry names (see Recruitment Packages Balloon). But stock options still hold out the promise of multiplying their earnings several times over. The amount of stock options they're likely to get depends on the age of the startup. "In the early stages, companies are wide open to offer the original team more incentives," says Welts. "But as risk diminishes, they establish a more structured equity plan. You're not as dependent on that one employee you hired as much as you were in the beginning, so you don't have to offer the same amount of equity."

In a typical early-stage startup, CEOs are given about five percent of the company's equity while the VP of marketing gets between one and three percent. The percentages decrease down the management chain. Usually, engineers and marketing department employees get somewhere around 10,000 and 20,000 shares of stock options.

Mid-level workers also get signing bonuses, typically in the neighborhood of $10,000, in addition to relocation expenses. They won’t get the interest free loans, free schooling for children and other benefits offered to key execs. In fact, big vendors often offer better relocation packages, according to David McCarthy, founder of DWDM Recruiters, LLC http://www.dwdmr.com, a recruitment consultancy.

Still, it's the stock options offered by startups that really count. "Back in October of 1998, any engineer would have been happy to increase his salary by 15%," says McCarthy. "But the way things are today he could potentially give his family and the next generation of his family financial security for doing a four year stint at a successful start-up."

by Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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