Ask HN: Is it typical to trade salary for equity when joining a startup?

[join_startup]

Suppose I got an offer from a startup that currently has funding to start hiring employees. Suppose they are offering a $100K total compensation package, such that I can choose to take a reduced salary for the equivalent in stock options (up to a certain limit). So if I am aggressive I can go $50K cash salary and $50K options a year (meaning $200K worth of options vested over 4 years with one year cliff).

Suppose the current valuation of the company is $4 million, so that means I can own up to 5% of the company (and they are ok with me owning this amount, as I will be joining as one of the first few employees.)

Suppose $100K is below my current market rate, so it seems I will not only be getting a pay cut, and then additionally exchanging my salary for equity. They mentioned that their other potential hires might also be taking even larger cuts (based on the total compensation).

Is this practice typical for startups?

I suppose the hope is that the equity portion of the compensation increases in value as the startup gets more successful.

[sajid]

Yes, it's typical practice.

If the other potential hires are experienced startup employees then their willingness to take even larger cuts is a very good signal. Of course, it doesn't mean anything if they're fresh out of college or haven't worked at a startup before.

[brk]

What you describe here directly is not typical, IME.

Sure, you can often negotiate over salary and stock options, especially if you wanted a larger comp package you might argue for a couple thousand more shares or something.

I haven't heard of too many (well, ANY, really) successful cases of this direct sliding scale of some kind of 1:X trade of dollars for options.

Also, I would be very afraid of any management team that would even allow you to have 1% equity. The math just doesn't work. If an individual contributor is going to get 1%, what do the founders have? What do the investors have? They'd likely run out of shares to allocate to employees before they even finished hiring.

Without more detail, what you describe here starts to sound a little bit like an incompetent or inexperienced management team, and I'd proceed with caution.