The ability to offer stock options is quite essential for startups. They are convincing talented people to join the startup when the startup is unlikely to be able to match the high salaries that large, established tech companies can offer.
However, it is a complex undertaking to develop a competitive stock option plan. Luckily, London-based VC Index Ventures is launching today both a handy web app to calculate all of this, as well as new research into how startups pay their key hires in Europe and the United States.
OptionPlan Seed is a web application for early stage founders who design ESOPs (Employee Share Ownership Plans). The web application is based on the Startup Option Grant Index analysis, drawing on data from over 1,000 startups.
The web application covers a variety of roles; six different levels of allocation benchmarks; calculates the potential financial benefit for each team member (including taxes); and adjusts to the political frameworks of the United States, Canada, Israel, Australia and 20 European countries.
It also builds on the OptionPlan for Series A companies that the index launched a few years ago.
As part of its research for the new tool, Index said it found that almost all early-stage employees were given 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 United States, in Europe, only 75% of technical hires are given options, dropping to 60. % for non-technical junior hires.
That said, Index found that the size of stock option grants was increasing, especially among startups “with a lot of technical DNA and weighted towards the Bay Area.” In less technological sectors such as e-commerce or content, the amount of subsidies has not changed much. Meanwhile, subsidies are still larger overall, as seed valuations have increased in recent years.
Index revealed that the size of ESOP increases at the start-up stage, following a faster hiring rate and larger grants per employee. Index recommends that an ESOP size at the start-up stage be set at 12.5% ââor 15%, rather than the more traditional 10% in order to retain and attract staff.
The research also found that the size and valuations of seed fundraisers doubled, while valuations increased 2.5 times in Europe and the United States.
In addition, starting salaries have “increased considerably”, with average salaries exceeding 60%. Senior technical positions in early stage startups in the United States now earn an average salary of $ 185,000, a 68% increase over three years, and can reach over $ 220,000. But in Europe, the biggest pay increases are in junior positions, both technical and non-technical.
That said, Index found that “European tech talent continues to have a pay gap,” with start-up tech workers in Europe still being paid 40-50% less on average than their US counterparts. Indeed, Index found that this gap had actually widened since 2018, “despite a narrowing of the gap for non-technical roles.”
Index also found that wage variations across Europe are “much wider than in the United States”, reflecting high-cost hubs like London, compared to low-cost cities like Bucharest or Warsaw.
The war for talent is now global, the pay gap for technical hires narrowing to 20-25% compared to the United States
Index’s conclusion is that “ambitious seed founders in Europe should raise the bar in terms of recruiting, especially in technical roles”, as well as target more experienced and higher caliber candidates, with fundraising efforts. more important to be competitive on wages.