Founders often ask: Will paying higher salaries or offering more equity really help keep my best people? The data suggests it can, but with certain caveats. In the wake of the 2021 hiring frenzy, employee turnover surged (43.4% of employees hired in 2021 left within two years (Carta, 2024)), and surveys consistently rank inadequate pay as a top reason people quit (Sifted, 2023). 

In recent years, the startup compensation landscape has shifted dramatically. To better understand what has changed and what the status quo looks like, we’ll examine current benchmarks for cash and equity across stages, geographies, and roles – and how these choices correlate with employee retention.

Let’s dive in!

After a period of upheaval, startup compensation seems to have hit a new equilibrium. The good news for employees: Salaries are climbing. By mid-2025, the average startup salary was ~5% higher than at the start of 2024, reversing the slight declines seen in 2023 (Carta, 2025). Some roles have seen especially strong pay increases, like legal hire average pay jumping 10% to $183K, and product managers now earn on par with software engineers (around $189K average for new hires, which is the highest among all traditional functions) (Carta, 2025).

The less-good news: Equity grants have been cut back. After the 2022 market correction, startups became markedly more frugal with stock options. The typical equity offer (as a percentage of company ownership) fell by about 26% on average in late 2022 and 2023 (Carta, 2023 & 2024). In other words, new hires today aren’t just getting a smaller slice of a now-lower valuation pie – they’re often getting a smaller slice of the company outright.

This pullback in equity was a deliberate response to market conditions: with abundant talent available and fewer funding rounds to replenish option pools, companies regained leverage and dialed down generous stock packages. The net result is that cash now makes up a larger share of startup compensation than it did during the boom, while equity has taken a back seat in many offers.

For founders and CEOs, this “salary-up, equity-down” shift has a direct implication for retention. On one hand, higher pay can satiate employees’ short-term expectations, especially with inflation and increased pay transparency. (Notably, 76% of employees told one survey they do not feel they are paid fairly (Advanced Resources, 2023), a sentiment that surely drives job-hopping.)

On the other hand, leaner equity means fewer golden handcuffs keeping employees around for a big long-term payout. If an employee’s stock grant doesn’t feel significant or if the company’s outlook is shaky, the retention power of equity diminishes. Indeed, employees have been less inclined to exercise the stock options they do have: Only about 32% of vested in-the-money options were exercised in late 2024, down from 54% a few years ago (Carta, 2024 b).

Many let their options expire worthless, signaling skepticism about upside or inability to afford the buy-in. In short, today’s compensation “new normal” puts more onus on cash (and company mission) to drive retention, whereas equity alone is a weaker hook than it was in frothier times.

How should compensation evolve as a startup scales? The “traditional” approach is this: Early employees get a much bigger equity stake, while later hires get progressively less (but higher cash). According to Carta, the first engineering or key hire at a startup tends to receive about 1.5% of the company in stock (four-year grant) on average (Carta, 2025 b). However, equity drops off quickly with each subsequent hire. By employee #5 or #6, median grants are around 0.3% or less (Carta, 2025 b). In fact, if a founder hired their first five team members right at the market median, they’d only give away roughly 3.6% of the company's total (Carta, 2025 b).

Many startups now get through their entire first 10 hires using <5% of the equity (Carta, 2025 b), preserving the cap table for future rounds. This is a leaner approach than in years past, partly because today’s early-stage teams themselves are leaner. For example, Seed and Series A companies are raising funding with smaller headcounts than a few years ago (the average Series A startup in 2024 had ~15.6 employees vs. 17.6 in 2021) (Carta, 2024).

With fewer mouths to feed, founders can allocate slightly larger slices per person or simply conserve equity more aggressively. Lately, most have chosen the latter, keeping option pools tight. It’s worth noting that at the growth stage, employee stock grants also shrank due to the market reset – later-stage companies (especially those using RSUs) cut individual grants to avoid excessive dilution after valuations fell (Carta, 2024).

One report found that even mid-level hire equity was slashed (junior managers’ grants fell the most), while C-suite equity was barely trimmed (Carta, 2025). In other words, late-stage startups protected their leadership’s ownership but gave considerably less equity to new hires below the executive level.

Geography plays a role here as well. U.S. startups traditionally have offered larger option pools than European startups, where equity culture took longer to catch on. But that gap is closing! European founders and boards are starting to embrace more competitive pay and stock to attract talent. In fact, founder pay in Europe jumped in 2024 (median founder salary reached €120K by Series A and €159K by Series B (Carta, 2025)), a sizable increase, especially in France.

Employee option pool sizes in Europe are also rising from historically low levels. Still, regional differences remain. In the U.S., companies in secondary tech hubs and remote talent markets have largely moved toward pay parity with Silicon Valley benchmarks. In 2023, 26 of 50 metro areas saw startup pay move closer to San Francisco levels as employers adjusted for remote hiring (Carta, 2024).

For founders, this means you can’t count on a location discount forever; you’ll need to budget for competitive salaries everywhere, or lean more on equity and mission to sell the role.

From Seed through Series C, a practical framework emerges: Early on, when cash is scarce, lean heavily on equity plus excitement (sell the vision, offer meaningful ownership). As you raise larger rounds, increase cash comp to market median levels while tapering the percentage of equity in each new hire’s grant. Always keep an eye on the total dilution (many VCs recommend reserving ~10-15% for employee equity before major funding events).

The goal is to balance skin-in-the-game with financial stability: Early employees who bet on you should feel rewarded with outsized ownership, whereas later employees joining a more de-risked venture will expect closer-to-market salaries. But don’t neglect equity refresh grants and promotions for those early hires as you grow. If you don’t top up your veterans, their initially large stake may wash out after multiple rounds, undercutting their incentive to stay for the finish line.

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One size does not fit all when it comes to startup pay. Engineers and product developers are commanding the highest paychecks - and they often stay the longest. As of 2025, engineering and product roles earn the top-tier salaries (around $189K for average new hires, as noted) (Carta, 2025), and they typically still receive solid equity grants (albeit ~15% smaller than a year ago) (Carta, 2025).

These roles are in high demand, and supply remains competitive, especially for specialized areas like AI/ML, where salaries spiked another ~5–9% recently (Carta, 2025) - insane top-tier packages notwithstanding.

Crucially, technical and product employees also show higher retention in startups: data indicates engineering and product teams skew more toward longer-tenured employees, whereas other departments skew younger in tenure (Carta, 2025). Why? Likely a combination of factors – engineers value the equity upside and intellectual challenge, and companies work hard to keep them engaged.

Many startups create strong career paths, continuous learning opportunities, and cultural perks for developers, which contribute to longer stays. Additionally, an engineer’s institutional knowledge compounds over time, so startups loathe to lose them (and often counter-offer aggressively if a key dev gets an outside offer).

Go-to-market (GTM) and sales roles, by contrast, tend to see more churn – and their compensation is structured quite differently. A great sales or marketing hire can drive revenue fast, but if targets aren’t met or growth strategy shifts, turnover can spike. In fact, startups have been hiring many more salespeople lately (nearly 20% of all new hires in 2024 were in sales, up from ~15% in 2020) (Carta, 2024), partly to fuel growth in a tougher market.

A culture of “hit quota or hit the road” in some startups contributes to this. To retain your best GTM talent, experts recommend crafting compensation plans that are aggressive but attainable, and revisiting targets frequently to ensure they’re realistic. Some startups also use SPIFFs and retention bonuses for sales – short-term incentives that reward staying through a critical quarter or year.

Given that salespeople directly see what they could earn elsewhere (they’re always getting calls from recruiters), keeping their compensation at or above market is key to loyalty. And non-monetary factors matter too: Clear advancement paths, territory stability, and supportive leadership go a long way to reduce regrettable attrition in sales ranks.

What about the executive team? In venture-backed startups, executives typically take relatively modest cash salaries (often below market rates for their position) but are granted significant equity to align incentives. A CEO might draw only $120K at the seed stage, but hold a large option stake.

By growth stage, VP and C-level salaries become very competitive with big-company rates, while their equity % remains high. Interestingly, when equity grants were shrinking for everyone else post-2022, C-suite equity was largely protected – the cut in grant size for top executives was “negligible” (Carta, 2023) – implying boards chose to keep leadership skin in the game. One thing to monitor is equity refreshes for executives and key leaders.

If an early exec hires a whole team and gets diluted through multiple rounds, you may need to issue them additional stock or RSUs to re-incentivize the next phase of growth (much like public companies do). Executive retention is a nuanced topic. Beyond comp, it ties into whether the company’s trajectory matches the exec’s career goals. However, compensation still plays a role: a competitive total rewards package (salary, bonus, equity, plus perks like severance protection on a change-of-control) can ensure your executives think twice before jumping to another opportunity.

Finally, a note on people and G&A roles (HR, support, etc.): These have historically been lower-paid in startups relative to engineering or sales. During the belt-tightening of 2023, some of these roles actually saw the biggest drops in equity compensation (HR personnel’s equity grants fell over 36%) (Carta, 2023).

Compensation alone won’t magically produce a loyal, long-tenured team – but it is one of the most powerful levers you control. Multiple data points confirm a strong correlation between how people are paid (relative to market and expectations) and their likelihood to stay:

Market-Competitive Pay Reduces Quits: In periods when tech salaries were surging (2021-2022), many startup employees hopped jobs to cash in on raises elsewhere. Now, as the market stabilizes, employees have become somewhat less restless – voluntary turnover in startups dropped 31% year-over-year by the end of 2024 (Carta, 2025).

A key factor is that companies have adjusted pay to be more competitive internally. Where an employee perceives that “I could get a lot more compensation by switching”, they are far more likely to seek a new job. Conversely, if you’re paying at or above the going rate, fewer employees feel the itch to leave purely for financial gain. According to Glassdoor data, startup employee turnover often exceeds 57% annually, vastly higher than the overall US average (~18% in recent years) (Glassdoor, 2025). Much of that churn comes from employees voluntarily jumping ship (~17% attrition) (Glassdoor, 2025). Clearly, startups have room to improve here, and offering competitive comp is part of the solution.

Fairness and Transparency Matter: It’s not just the absolute dollars – it’s whether employees feel their pay is fair. A recent analysis by Payscale found that the perception of unfair pay was the single biggest driver of intent to leave a job, even more than issues with one’s manager or company culture (Payscale, 2024).

Pay transparency laws (now enacted in many U.S. states and most EU countries) have exposed discrepancies and empowered employees to demand their worth. Interestingly, as companies become more transparent about salary bands, retention tends to improve – Payscale found only ~16% of U.S. employees who left in the past year cited better pay/benefits as the primary reason, suggesting many employers are responding to the market and meeting expectations (Payscale, 2024).

Equity as a Retention Tool, but Use with Care: Stock and options can powerfully align employees with the startup’s long-term success. They encourage people to stick around at least until key vesting milestones (hence the classic four-year vest). Many early startup employees do stay roughly until their initial vesting is done and then reevaluate. About half of startup employees leave within ~3 years of joining (Carta, 2024) – which not coincidentally is when their first option grant is usually fully vested.

To push beyond that, savvy companies implement refresh grants around year 3 or 4, effectively “re-upping” an employee’s unvested equity and golden handcuffs. If you neglect this, you might see an exodus right after the four-year mark. That said, equity only retains people if they believe in its future value. During the downturn, many employees lost faith in their underwater options (or couldn’t afford the exercise cost), resulting in record-low option exercise rates (Carta, 2024 b).

Some startups are responding with creative retention incentives like forgivable loan bonuses (e.g., a cash bonus that the employee must repay if they leave before X years) (Techcrunch, 2022). These can substitute for lost equity value and give a tangible reason to stay.

Total Rewards and Intangibles: While cash and stock are central, don’t overlook the rest of the package. Startups often can’t match big companies on 401(k) matches or luxurious perks, but they can offer meaningful benefits that improve retention: flexible work arrangements, generous PTO, education stipends, robust health coverage, etc. In one survey, 65% of employees said better benefits or perks would keep them from looking elsewhere (Ravio, 2025).

And beyond material perks, consider career growth opportunities. Many people stay at startups because they’re getting learning and advancement they wouldn’t get elsewhere. A slightly below-market paycheck can be overlooked if an employee is deeply engaged and sees a path to leadership or a significant resume boost. Founders and managers should regularly discuss growth plans with their team – promotions, new responsibilities, mentorship – as non-monetary rewards that strengthen the employee’s commitment to the company.

Thanks to Jérôme Jaggi for his help with this post.

Stay driven,
Andre

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