Growth-stage startups in the country are now spending as much as 68 per cent of their revenue on employee compensation part, emerging by far the biggest cost center in the business, said a report on Thursday discussing the evolving compensation trends in the Indian startup ecosystem.
Launched by growth platform for startups xto10x, the report addresses questions around cash and equity compensation structure, best practices for designing ESOPs to attract and retain top talent, comparing startup compensation models to traditional enterprises, and more.
For positions such as CXOs, VPs, and function heads, fixed pay typically ranges from Rs 80 lakh to Rs 1.7 crore, with significant variability across functions. This compensation for the top leaders in startups generally exceeds that of the immediate subordinate levels by 30-40 per cent.
Moreover, leaders in tech domains such as engineering, product, design, and data science can command compensation up to 80 per cent higher than their counterparts in HR, marketing, and other non-technical roles.
With respect to the size of the business as a startup evolves from early-stage to growth and late-stage, the leadership pay jumps by 30-40 per cent at each stage of business development.
When it comes to founder’s pay, the cash compensation carries a 20-40 per cent premium over the company’s highest-paid CXO. This is in stark contrast to the salaries drawn by CEOs in enterprises, which could go up to tens and hundreds of crores.
While for founders, the equity is their skin in the game, but what should be the ideal ownership percentage? According to the data sourced from 36 startups in the report, founder ownership varies widely from as low as 0.8 per cent to a significant 74 per cent. Moreover, equity holding is not directly linked to the startup’s valuation or revenue.
Hence, for a founder to have a decent stake in his/her company and stay motivated to grow the business, a management stock option plan (MSOP) acts as a powerful tool.
While structuring MSOPs for founders, there are two key aspects to think about: “Quantum of the MSOP grant and the mechanics associated with the grant. An analysis of 24 startups that implemented custom grants shows that founder MSOP grants range from less than 1 per cent to 6 per cent of total equity and are largely uncorrelated with company valuation or founder’s current ownership stakes,” the report said.