All founders want to compensate their team fairly and competitively. But when the startup and scaleup landscape is undergoing profound shifts, what does fair, competitive compensation really mean? Part of the answer is understanding industry trends, which is why we sat down with Carta’s Bob Engel to uncover the latest compensation data and the implications for startup founders and their teams.

The positive news? Generally, salaries have been slowly but solidly growing across tech and commercial functions alike in recent years. Which roles are performing particularly strongly right now? Unsurprisingly, Bob highlights AI and machine learning engineers, but also points out that salaries for legal roles have been increasing rapidly, “up around 9-10% year-on-year in some cases.”

The other side of the coin is equity packages, which have been trending downwards in recent years after increasing rapidly in the aftermath of the COVID pandemic. “We’ve seen average equity compensation decline by anywhere from 36% to 50%,” says Bob. Layoffs in the tech sector over the last couple of years have helped create a more employer-friendly job market, so companies have been able to attract talent without the same generosity on share options compared to previous years.

Of course, being granted share options isn’t the same as electing to exercise your option to purchase those shares. Bob observed that lately, around 70% of the employees with share options on Carta have been deciding not to exercise their option to buy shares when offered (such as when they depart the company). “There’s obviously a financial risk to exercising options, as you pay your strike price up front, but we see more reluctance to take that risk compared to previous years, even when the price per option is heavily discounted.”

Despite downward momentum in equity packages, companies are finding additional routes to liquidity for founders and employees. Tender offers and secondary share sales used to be reserved for late-stage companies building up to an initial public offering. Now, almost 40% of tender offers happen in companies at the Series B stage and potentially even earlier. Additionally, Carta is seeing very high investor demand for companies’ secondary shares. “In 2021,” Bob says, “around 75% of the shares made available in tender offers were being bought by investors. Those shares are now being bought up to 99.9% of the time, so there is definitely more investor appetite for secondaries.”

There is always a distinct cultural component to share plan design and compensation strategy. For decades, the US has stood out for the simplicity of its employee option agreements such as Incentive Stock Options (ISOs) and Restricted Stock Units (RSUs), and for the generosity of equity plans. Index Ventures’ guide to compensation, Rewarding Talent, suggests that the average European employee ends up with around half the equity in their startup or scaleup compared to a peer in the US.

US investors are generally perceived as being more accepting of employee option pools representing 15% or 20% of the total share capital, while UK and European investors have been more reticent to dilute their own shareholdings to this extent. Bob also references the “social proof” of big exits and IPOs which give investors and employees the confidence to allocate significant equity grants to employees.

Although the US is still the global market leader, Bob highlights the UK government’s improvements to the Enterprise Management Incentive (EMI) scheme as a sign that momentum continues to build in UK tech and innovation.

Watch the full interview where Bob gives his perspective on the best practices and red flags for founders seeking to maintain a clean cap table while appropriately incentivising employees. And for much more on scaling operations and building culture, head to our Insights page.