Pay for some startup employees has jumped by nearly 60% in Europe over the past three years, according to new data, as increasingly well-financed young tech companies engage in a war for talent.
The data, compiled by Index with data from Advanced HR, shows inflation in salaries for both tech and non-tech roles across seniority, and an increase in stock options offered.
Junior non-tech roles saw the highest increase in salaries between 2018 and 2021 with a 57% jump, from an average of $35k to $55k. Junior tech roles are also up by 50%, from $40k to $60k.
“There's an arms race going on. We’ve never seen a talent market like this before and how it’s affecting compensation,” says Dominic Jacquesson, Index Ventures’s VP Insight.
Jacquesson says that as well as bigger funding rounds giving founders the ammunition to offer more cash and equity, there are also more companies competing for talent, and more post-IPO companies with deep pockets.
“There's an arms race going on. We’ve never seen a talent market like this before and how it’s affecting compensation.
The firm says that Europe is still well behind the US in terms of compensation, with technical employees at seed-stage companies in Europe being paid 40-50% less on average than their US peers — a gap that has widened since 2018.
Index compiled the data to coincide with the launch of a web app to help seed-stage founders calculate employee stock ownership plans (ESOPs).
The calculator is based on data from 1k+ startups, and accompanies a similar tool Index launched for Series A companies a few years ago. The VC firm has lobbied heavily for stock option regulation reform across Europe.
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In Europe, the subsector leading the trend in terms of higher salaries and more equity compensation is deeptech.
Index says the compensation gap for technical hires in deeptech has now narrowed to just 20-25% below the US, likely a sign that deeptech companies with a need for specific technical talent have simply been forced to pay for the best.
Stock options state of play
Given that seed-stage companies often don’t have the biggest war chests, one way they can entice talent and compete with bigger tech companies is with stock options.
“It’s the most meaningful way they can attract the top talent. All of our seed-stage companies are offering options,” says Index principal Hannah Seal. “Europe has had so many big exits over the past few years. Employees are seeing the upside and seeing the value of having options.”
Index launched a $200m dedicated seed fund earlier this year.
But regulation concerning stock options at the country level is often outdated and burdensome.
In the US, nearly all technical hires at seed-stage companies get stock options — a figure that's 80% for junior non-technical hires. The comparative figures are 75% and 60% in Europe. While it does sound low compared to the US, Index says that it “represents a significant increase in the prevalence of stock options in Europe.”
Index also says that companies are putting more equity aside to compensate employees, known as ESOP pools. The firm says that the ESOP size at seed stage should be 12.5% or 15% of total equity, instead of the 10% companies usually put aside.
“Policy-wise, the US is log jammed on the stock option issue so there’s a huge opportunity for Europe to leapfrog ahead,” says Jacquesson.
The European Commission launched an initiative earlier this year called the EU Startup Nation Standard, which is pressuring national governments to change their local rules on issues such as stock options.
Seal and Jacquesson say that the shift towards remote work will also be a key driver of compensation going forward.
My sense is that the power is more with the employees now, given there’s so much demand for talent,” says Seal. “The best talent is going to be able to set their price regardless of where they are based but the consensus of how to do that is still emerging.”
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