You are the inventor of a new phone app that converts photographs into a Picasso

Question

You are the inventor of a new phone app that converts photographs into a Picasso painting. Your mathematical expertise has created an algorithm based on all of Picasso’s works that will covert any picture into a near perfect representation of how Picasso would have painted the picture. You are convinced this will revolutionize photo apps in the future. Unfortunately, you have no employees to develop it and potentially create expanded uses.

You want to bring in 8-10 developers who will develop and fine-tune the app before launching it for public use. You expect these developers to work exclusively in your company for 5-10 years. After that, you figure the company will either be sold or move on to something else.

Your Assignment:

You need to quickly devise a compensation structure that will attract highly creative employees who will be engaged in the work for 5-10 years. Specifically, you need to develop a pay/salary structure and benefit plan to meet this purpose.

What pay and benefit plans would you devise to meet these purposes?

1-2 pages please!

Explanation / Answer

Background

The engineers who are already working for a stable big firm enjoy high fixed salaries every month, benefits like medical insurance, retirement plans. Then the big question arises what is their motivation to join startups?

Growth & Learning Curve is high (provided startup succeeds)

But that's not enough to attract them- Incentive & salary structure has to be put in place for them to work and stay with the startups, leaving behind their high paying corporate jobs. Hence startups face a big challenge in designing the salary and incentive structure for these employees within the constraints of limited available cash flows in their growth stage.

Proposed Solution

The salary structure of employee will be divided into three parts:

Fixed Cash Component: The fixed cash component of employee cannot match to their corportae salaries since the startups have limited cash flows, but it should match the market standards of the startups already operating in the domain to avoid any poaching.

Fixed Stock Component: The fixed stock component motivates the employee by instilling a greater sense of ownership, which in turn is not provided in big corporates. The fixed stock component should be as per the industry standard for example: the industry standard in IT industry startups for 2nd Level employees is 2-3% of the equity, then the employee can be given anything between 2-3% of the total equity depending on the initial negotiation. But most importantly these stocks should be vested over a period of 5-10 years, to increase employee retention

Variable Component in form of cash/stock: The startup enjoys the privilege of offering tailor made salaries to their employees unlike big corporates and owing to this component, if an employee wants an extra cash flow then he/ she can be offered cash as bonus, else stocks. But the startup owners should keep a cap on maximum cash that can be offered as bonus owing to limited cash flows with them and at the same time an upper cap has to be maintained on bonus shares that can be offered to the employee, since they cannot afford to pass on a lot of control to second level employees of the startup. This variable component will be entirely based on the employee performance.

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