The gory details of financial planning for hiring budgets are out of the scope of this Guide, but it’s important to know who makes those decisions in your organization, what the process is, and what the deadline is for making sure your hiring needs are included. There is always time between when a company opens a role, and finds, hires, and onboards a candidate. Some searches, especially for rare and senior roles, can take months to complete. A proper hiring plan thus looks not just at the present moment, but where the team and company might be in the future. This is also why it’s important to be proactive about things like building a network and investing in your employer brand, and any other activity that can reduce the time it takes to make a hire. If you’re in a position where you “need that role filled yesterday,” not only will your team be lacking the people it needs for that stretch of time, but you’ll also be more likely to lower your hiring bar out of desperation.
Equity is a key part of compensation and hiring plans. In larger companies, defined employee stock plans or grants of restricted stock units (RSUs) are common.
Startups grant equity as a key part of compensation, and plan its allocation. Generally before the first employees are hired, the founders will reserve a number of shares for an employee option pool (or employee pool), which is part of a legal structure called an equity incentive plan. A typical size for the option pool is 20% of the stock of the company; but especially for earlier-stage companies, the option pool can be 10%, 15%, or other sizes.
Well-advised companies will reserve in the option pool only what they expect to use over approximately the next 12 months, so as not to over-grant equity. Your company may never use the whole pool, but it’s still wise to try not to reserve more than you plan to use. The size of the pool is determined by complex factors between founders and investors. It’s important for employees (and founders) to understand that a small pool can be a good thing in that it reflects the company preserving ownership in negotiations with investors. You can always increase the size of the pool later.
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