First employee equity: how much to offer

These ranges reflect risk taken relative to salary. Early employees often accept below-market cash pay in exchange for meaningful equity upside, since the company has little proof of traction and a higher chance of failure, and grants are drawn from the option pool.

A senior engineer or first head of a function joining early typically sits at the top of the range for their hire order, while a junior hire in the same batch sits at the bottom. Roles that are hard to fill or highly leveraged, such as an early technical co-founder-level hire, can command equity above the normal range, usually delivered as stock options rather than shares.

Employee grants are drawn from an option pool, a block of shares set aside specifically for this purpose, usually 10% to 15% of the company at the time it is created. Investors typically require the pool to be sized and, where needed, topped up before they invest, so that the dilution from future hiring falls mostly on existing shareholders before the new investor's money comes in. See advisor equity for the mechanics.

A pool top-up before a funding round dilutes existing shareholders, including founders, not the incoming investor. This is a common negotiation point in term sheets.

New hires often overestimate what a percentage is worth without context on valuation, dilution, and exercise cost. A grant letter should state the number of options, the strike price, the vesting schedule, and a plain-language note that percentage ownership will dilute over future rounds.