How Much Equity to Give Early Employees (And Why the US Numbers Are a Ceiling, Not a Floor, Outside It)

The most-cited benchmark — from Carta's compensation data and SaaStr's founder surveys — puts a startup's first non-founder hire at a median of 1.5% of fully diluted equity, ranging from 0.5% to 4% depending on role and risk taken. That range drops fast after hire one, roughly 40-50% per subsequent hire. Outside the US, use it as a reference ceiling rather than a target: the number that actually fits your company depends on the cash gap you're closing with equity, which local salary markets and your entity's legal instrument change in ways the US data doesn't account for.

Almost everything written on this question — Carta, SaaStr, Pear VC, Hustle Fund — is calibrated to US salary levels, US instrument types (ISOs, NSOs, Rule 701), and a Delaware C-corp cap table. If you're hiring your first engineer in Nairobi, Riyadh, or Ho Chi Minh City, the percentages aren't wrong, but the logic behind them needs different inputs before you can trust the output.

Start from the benchmark, then ask what it's actually measuring

The widely cited numbers are worth knowing before you touch your own cap table:

• First hire: median 1.5%, with a 25th-percentile of 0.5% and a 75th-percentile of 4%
• Second hire: roughly 0.85%, a decline of about 43% from the first
• First engineer specifically: around 1%, non-technical roles closer to 0.67%
• Sam Altman's older rule of thumb: 10% split across the first ten employees, 5% across the next twenty, 5% across the next fifty
• Total early-stage option pool: commonly 10-20% of fully diluted shares, sized to the hiring plan rather than picked from a chart

These numbers exist because a large enough sample of US grants has been published. That's exactly the limitation: the data answers "what did companies paying US cash salaries actually grant," not "what should a grant be worth." A grant is a way to close the gap between what a candidate could earn elsewhere and what you can pay them now. Change the denominator — the local cash market — and the same percentage stops meaning the same thing.

The salary-gap math, run properly

The honest way to size a grant isn't "look up the benchmark," it's:

1. Price the role in your local cash market. What would this person earn at a comparable company paying market cash salary in Lagos, Cairo, Jakarta, or Dubai — not what they'd earn in San Francisco.
2. Decide what you can actually pay in cash. Most early-stage companies underpay cash relative to that local market too, just less dramatically than against a US benchmark.
3. The equity grant compensates for the gap between 1 and 2, weighted by risk. A candidate leaving a stable, well-paying local job for your six-person startup is taking on real risk; a candidate between jobs anyway is taking on less.

Here's where outside-the-US founders get the direction wrong most often: they assume a lower cost of living justifies a smaller grant, because "everything is cheaper here." That logic doesn't hold — equity has zero value until an exit, and the person's rent, school fees, and everyday costs are priced in local currency regardless of what a US benchmark table says their role is worth abroad. If the cash you're offering is meaningfully below what they'd earn at a comparable local company, the equity has to actually close that gap — sometimes a larger percentage than the US median, not a smaller one, because you're asking someone to accept more real income risk for the same or lower dollar-equivalent upside.

The one adjustment that does hold: if your last priced round or SAFE cap sets a lower dollar valuation than a comparable-stage US company would carry, the same percentage is worth fewer dollars on paper. Don't quietly shrink the percentage to compensate — that transfers the valuation gap onto the employee twice. Be transparent that the valuation is lower, and let the grant size reflect the actual comp gap you calculated, not a discounted version of a US number.

The instrument changes what the percentage even means

A 2% grant is not the same promise everywhere, and this is the part almost no benchmark article touches because it assumes a Delaware C-corp by default.

• Real stock options — available where your entity type supports it: Delaware C-corps, UK companies via EMI, Indian private limited companies, and now Saudi entities under the current Companies Law's incentive share scheme provisions. A real option is a right to buy an actual share.
• Phantom shares or cash-settled SARs — the standard workaround where issuing real equity to employees isn't clean under local commercial law, which is the normal case for a UAE mainland LLC. These are contractual promises to pay cash tied to share value on a trigger event. No share ever changes hands, and the "pool" isn't authorized share capital — it's a future cash liability, tracked separately from your real cap table. This is covered in detail in Phantom Shares vs Stock Options.
• RSUs — more common for later-stage or public-adjacent companies, less common at the seed-to-Series-B stage this article is written for.

Quoting a candidate "2% equity" without specifying which of these they're getting is a common source of early-hire disputes once someone reads the grant agreement. Decide the instrument before the number — the same percentage of a phantom pool and a real option pool aren't comparable claims.

Vesting is where trust either holds or breaks

The percentage gets the headline; the vesting schedule is what actually protects both sides. The market standard — four years, with a one-year cliff, monthly vesting after — applies regardless of jurisdiction or instrument type. Nothing vests before month twelve; 25% vests at once on the cliff date; the rest vests monthly over the following three years.

Skipping or softening the cliff for an early hire because "we trust them" is a common mistake in small, relationship-driven teams, and it's the wrong instinct. The cliff exists precisely because early relationships are the ones most likely to end within the first year without it being anyone's fault — a bad fit surfaces faster than four years, and a company without a cliff has given away real equity to someone who left in month four. A properly documented schedule, not a verbal promise, is what makes the percentage you quoted enforceable — see Vesting Schedule Template for the mechanics, including what changes after a Delaware flip.

Sizing against the pool, not in isolation

Every grant draws down a finite pool, and the pool itself should be sized bottom-up against your actual 18-24 month hiring plan, not picked from the same 10-20% range everyone quotes. Grant individual percentages without checking the running total against pool capacity, and you'll either run out mid-round and force a dilutive top-up, or discover the pool was oversized and gave away equity you didn't need to. Track both numbers — the grant and the remaining pool — every time you hire, not just at fundraising checkpoints.

Documenting the grant so the number survives contact with reality

A grant only means what it says if the paperwork matches the jurisdiction and instrument: the right agreement type for real options versus phantom shares, vesting terms that match what you actually promised, and a cap table that reflects the grant the moment it's issued, not weeks later from a spreadsheet someone forgot to update. Founders hiring across countries add a further layer — a side letter alongside any Employer of Record contract, since the EOR is the legal employer on paper but has no role in the equity agreement itself.

Write the number down precisely, whatever it is: percentage, instrument, vesting start date, cliff, and the pool it's drawn from. A verbal "somewhere around 1%" is the version most likely to become a dispute a year later.

FAQ

How much equity should a startup's first employee get? The most-cited US benchmark data (Carta's compensation reports, SaaStr's founder surveys) puts the median first-hire grant around 1.5% of fully diluted shares, with a wide range from 0.5% at the low end to 4% for a critical technical co-founder-adjacent hire. Outside the US, treat that range as a starting menu, not gospel — the right number depends on how much of the role's market cash comp you're replacing with equity, which is a different calculation at a Lagos or Karachi salary than a Bay Area one.

Does equity percentage drop a lot with each subsequent hire? Yes, sharply. Published data shows roughly a 40-50% decline in grant size from the first hire to the second, and it keeps compressing from there — hire #10 might get a tenth of what hire #1 received for a similar role and seniority, because each later hire is joining a company with more proof it will survive. Size grants against a hiring plan and a declining curve, not a flat percentage repeated for every early employee.

Should equity replace salary for early hires in lower cost-of-living countries? Not fully, and doing so is a common mistake. Equity has no cash value until an exit, so an employee accepting a below-market salary purely against equity is taking on real personal risk that doesn't shrink just because the local cost of living is lower. The honest approach is to pay a livable local-market salary and use equity as the upside on top of it, not as a substitute for income the person needs now.

What instrument should early employees actually receive — options, RSUs, or phantom shares? It depends entirely on your entity's jurisdiction, not on what's easiest to explain. A Delaware C-corp or an Indian private limited company can issue real stock options; a UAE mainland LLC generally cannot, and defaults to phantom shares or cash-settled SARs instead; Saudi Arabia's current Companies Law now permits real incentive share schemes. Pick the instrument your entity type actually allows before you promise a number, because "2% equity" means something different on a cap table than "2% phantom pool."

Does the equity percentage change if the employee is hired through an Employer of Record? The percentage math doesn't change, but the mechanism does — an EOR is the employee's legal employer on paper, so the equity grant has to sit in a separate side letter directly between your company and the individual rather than inside the EOR's employment contract. Skip that step and the grant has no clean legal home, regardless of what percentage you agreed to verbally.

Govy tracks every grant — percentage, instrument, vesting, and pool — on one audit-grade cap table, with jurisdiction-aware contracts for whatever instrument your entity supports. See how it works at govy.tech.