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Elements of Compensation

Definition Total target compensation (TTC, total compensation, target compensation, or TC) is the value of an employee’s cash and equity compensation, assuming any relevant conditions are met. This measure typically does not include benefits, which may also be part of an employee’s compensation package.*

Depending on the company, a compensation package may be made up of some or all of the following:

Definition Base salary is a fixed amount paid to an employee at regular intervals. Although it is often expressed as an annual number, companies generally pay it out in weekly, biweekly, or monthly installments.

Definition A sign-on bonus (or signing bonus) is a one-time payment to an employee that is associated with them joining a company. Sign-on bonuses are often contingent on the candidate staying with the company for a certain period of time—usually one year. If an employee’s sign-on bonus includes this contingency and they leave the company before the end of the relevant period, they may be required to repay the sign-on bonus.

Definition A relocation bonus is a one-time payment made to assist candidates who might incur moving expenses as a result of their new role. Companies can offer relocation bonuses when a new employee is joining or when an existing employee is moving to a new role at the company in a different location.

Definition An annual bonus is compensation issued once a year to an employee. It can come in the form of cash—a lump-sum payment on top of an employee’s base salary—or equity. When companies pay annual bonuses in cash, they often quote the bonus as a target percentage of the employee’s base salary. Some employers make annual bonuses contingent on employee and/or company performance.

Definition Equity is ownership in a company, and it can be given to employees as a form of compensation. Equity may take the form of stock, stock options, restricted stock units, warrants, and so on. Many technology companies, including most startups, grant some form of equity-based compensation to employees.

Definition Benefits are non-cash services and advantages that a company offers to employees. Benefits may include various levels of healthcare coverage; family-related protections like childcare or health insurance for partners and dependents; perks like meals, the coverage of transportation costs, or enrichment classes; retirement plans; paid leave for vacations, parental leave, and family medical leave; and more unexpected benefits that emphasize health, curiosity, and mission alignment. Benefits programs vary from company to company in their level of systematization, treatment of seniority, and rules on the inclusion or exclusion of contract workers and part-time employees.

Cash vs. Equity

It has become common practice in the tech industry, both at startups and large companies, to grant some form of equity to employees. And compared to cash, equity may much better align the interests of employees with the long-term interests of the company—or at least that is its intention. For earlier-stage employees, equity is a much riskier form of compensation because of the wide variance in eventual value—an employee’s shares in the company (not to mention those of the founders and investors) could end up being worth nothing, or hundreds of millions of dollars or more. Equity compensation is a notoriously complex subject. (For a deep, practical dive into the complexities of equity compensation, see The Holloway Guide to Equity Compensation.)

Candidates can have very different needs and preferences when it comes to cash and equity. Cash has a guaranteed value (setting aside changes like inflation), while equity can end up being worth a lot more or less than anyone’s best guess. Cash is a commodity; equity in a company is not.

A candidate’s response to equity vs. cash may stem from their risk preference. But often, it comes down to practical necessities. Founders may feel that a candidate unwilling to sacrifice cash for equity doesn’t believe in the company, when in fact, differing financial and familial situations may determine candidate response. For example, a candidate who has a family to provide for, or obligations like student debt to repay or mortgages to maintain, may be unable to sacrifice a guaranteed salary, even if they are passionate about your company’s mission. Companies do well to foster sensitivity to this reality in their candidate pool.

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