Compensation and Transparency at Longshot
By Mike Grace
Most startups do not tell hires what fraction of the company they are getting as compensation, and that blows my mind. They'll say, “You are getting XYX number of shares. Congratulations!” XYZ will be some big, impressive number, but they won't say how many shares exist in total or if special categories of shares have been carved out. This is absurd as there is no way of even guessing what the current, or future, value of those shares will be without that information. You could bust your ass working at a company, making it successful, only to discover that the long-anticipated payday from selling your 100k shares buys a nice car rather than a nice house. Expecting employees to act as though they have ownership in the company while hiding these key pieces of information is perverse and alienating.
The only thing that prevents companies from abusing this terribly is the reputational risk to future hiring and the threat of full-on revolt by existing workforces when the wool comes off. Those constraints aren’t nothing, but this practice seems to put a lot of dangerous power into the hands of management. It also, in my mind, lowers the power of equity as a tool for incentivizing team members. Only someone who is very naïve or desperate would take equity without a grain of salt under these conditions.
From the perspective of the founder running the company, I feel like the secrecy of this information is a potential landmine that could seriously damage the firm. The informational disparity may provide some advantages in hiring early on, but as you go through more rounds, and as information about the macro situation of the company becomes more public, people will put two and two together. If you snooker someone into thinking a small stock grant is a big stock grant, they will rightfully be pissed. How does that help the company? Also, everyone who does a startup does one for the first time. Doing everything in the dark has other failure modes. Rather than tricking someone into a deal favoring the company, you could end up under-compensating someone out of simple mutual inexperience. Over-compensation can become a problem too in that it can piss other people off if/when they find out about it.
This all applies to cash compensation too. While people have a much better idea about what is normal for their position, ambiguity here also plays to the firm's short-term advantage. Long term, I don’t think it matters that much and can also turn into hurt feelings or worse.
On the other hand, if you do everything with your cards on the table, and are open with candidates in the hiring process, anyone who’s going to take umbrage has the opportunity to do so before they come into the fold. It can also help avoid mistakes and misunderstandings. People inside the company now have the information to speak up if they think something weird is going down before it gets baked into an employment contract.
At Longshot, we decided to make our cap table and the cash compensation of everyone internally available on request. We also review it with prospective hires and do an internal transparency report periodically just to make sure everyone knows what’s up. I feel if we had gotten much bigger it may have been impossible to build consensus around sharing the cash compensation numbers, but now that we’ve done it, it feels good, and I think it makes everyone feel better about working here and working together.
Just putting it out there, if you think building a crazy space gun sounds cool and want to be treated like a human being while doing it, consider dropping us a line.