Oct 16 2007 by Brad

How Much Equity Should an Early Stage COO/CFO Get?

Q: We are a virtual company that will operate very lean. I am hiring a COO/CFO at the moment, and am wondering what share grant would be appropriate. I have seen CEOs recruited into startups receive something like 5%. Are there rules of thumb?

A (Brad): We’ve got plenty of posts around this general topic in the Compensation archive.  The most specific one is titled What are typical compensation numbers? although it doesn’t really address the direct question.

Every situation is different, but a non-founder COO/CFO recruited early into a startup (say – pre-financing) will usually get options for between 1% and 5% of the company.  COO’s tend to get more than CFO’s – although at the very early stage I’d assert that the same person should be able to do both jobs (which seems to be implied by the question.)  If this is the case, I’d err on the high side.

As part of this, I’d be very focused on vesting.  We cover this in Equity Compensation Terms and on Feld Thoughts in Term Sheet – Vesting.  When you hire someone on early in a startup, you want to be obsessed about making sure their stock / options have vesting terms on them in case they do not work out and you have to fire them.  This is especially important in situations where you hire on someone into an early stage COO or CFO position – while everyone hopes things will work out, they often don’t.