2023 Crypto Salary Report: How to Calculate Salary, Equity, and Tokens?

Original title: 2023 Crypto Compensation Report

Original author: Zackary Skelly, Chris Ahsing

Original translation: Frank, Foresight News

The cryptocurrency industry is growing rapidly, but industry salary data is very scarce, especially comprehensive analytical data, which may become a key stumbling block for crypto startups seeking strategic growth, so the annual salary survey conducted in this report is to fill this gap.

In short, this report will provide a more granular dataset related to crypto compensation, and hope to provide a clear picture of crypto industry salary trends in a way that is easy to understand and useful to anyone setting, negotiating or trying to understand compensation (whether it is a recruitment team, a candidate or an industry observer).

Demographic Information Recorded

The analysis in this report is based on a survey of 49 portfolio companies conducted in 2023 and based on available data to reflect overall trends, while further research with larger sample sizes will help confirm these trends, we recommend interpreting the survey results based on the listed respondent response rates and the following points:

· Role: "Crypto Engineering" refers to engineers focused on protocol or blockchain development, "Marketing" includes sales, marketing, and business development, and compensation reflects total target income including commissions;

· Reporting Methodology: We asked companies to select a preset salary range among employees at different seniority levels so that we report the average minimum and maximum salary range. However, for founder compensation, we use the median value based on free responses in the survey;

· Founder Equity: The founder compensation section focuses on the percentage of equity/tokens owned, and does not distinguish between the two;

· "International" definition: "International" refers to companies not in the United States.

· "Non-traditional" definition: Companies with "non-traditional" financing have either conducted public token sales or are DAOs;

· Rounding: Due to rounding, some numbers (such as demographic information) may have very small errors;

Salary, Equity and Token Compensation Ranges

Below are salary, equity, and token compensation ranges for different employee roles, broken down by U.S. and international companies: Software Engineer, Crypto Engineer, Product Manager, Product Designer, and Marketer.

Compared to international companies, nearly all roles and seniority levels are paid more in the U.S. On average, U.S. companies have roughly 13% higher salaries and about 30% higher equity and token incentive programs.

Compared to international companies, nearly all roles and seniority levels are paid more in the U.S.

Compared to international companies, U.S. companies have roughly 13% higher salaries and about 30% higher equity and token incentive programs, on average.

Compared to international companies, nearly all roles and seniority levels are paid more in the U.S ...

Some interesting data and outliers:

· Equity and token programs for product designers at international companies are closer to US data than other positions;

· Product manager positions at international companies have significantly higher equity compensation across the hierarchy, which is unique among all positions;

· Executive/director level compensation and equity in marketing departments at international companies are higher than similar positions in US companies;

Observations on robustness and reliability:

· Observations on compensation: The data shows that compensation for different roles and seniority levels is generally robust, especially for comparing US and international markets;

· Observations on equity and tokens: Data on equity is relatively reliable in the US, data on token compensation may be more reliable, especially for international data and lower seniority levels; Founder compensation As expected, founder compensation increases as companies raise more money, while equity/token ownership decreases, likely due to dilution. Most founders report below-average compensation prior to Series B. The lack of international data for Seed, B, and C rounds makes it difficult to compare founders of US and international companies. Interestingly, however, US founders generally have slightly higher compensation when comparing Seed and Series A rounds, but significantly higher equity ownership, especially at the Seed stage.

Cost of Living Adjustments and Methodology

Most companies do not adjust compensation based on cost of living (COL).

Among companies that do adjust, we see two common approaches:

· Adjust based on local market prices (a very popular approach);

· Or adjust within a tiered geographic framework. With this approach, companies first determine a salary benchmark from a specific location (usually a very competitive area) and then adjust each person's offer by a percentage based on the geographic tier (sometimes determined using a radius from a major metropolitan area), which is intended to balance internal pay equity with external competitiveness across different regions;

Companies that do not adjust based on cost of living generally believe that their compensation is strictly tied to the value someone creates for the company, regardless of where they are located, which will continue to maintain a competitive advantage in terms of hiring speed and attracting top talent. That being said, we always encourage companies to consider the most sustainable way to build a high-performance team within their budget.

Teams may also decide not to adjust for cost of living reasons based on overall purchasing power equity in different parts of the world, and not everyone living in a high cost of living area can give up their lives and move to a cheaper place to enjoy the benefits of the cost difference.

We assume we’ll see more of a middle ground in the future, where some companies will move from cost of living to labor cost adjustments, which you can think of like this:

· Cost of living: “We’ll adjust your compensation based on the local market rate in your area”;

· Cost of labor: “We’ll adjust your compensation based on the demand for your role in your area”;

For example, some remote areas in Texas may have a lower cost of living, but since petroleum engineers are in high demand there, this will drive up the compensation for those roles.

There isn’t enough industry data out there to easily adopt labor cost adjustments (especially in crypto, such as demand for protocol engineers in a specific city/country). However, many compensation experts and data providers are considering this model, and we do think teams can benchmark and adjust for more standardized/generic roles.

Having real-time compensation and hiring demand data is key, and it can be helpful to supplement it with data available in the market and compensation data you collect from candidates. We may explore trends around this in our next salary survey, though we haven’t seen many teams take this approach yet.

In summary, we expect hiring strategies to differ by role: for example, if you’re hiring for a non-differentiated engineering role (e.g., a general front-end engineer), you’ll pay this candidate an adjusted salary; however, if you’re hiring for a globally competitive, differentiated role (e.g., a Solidity engineer), you may want to pay strictly based on the value of their work.

Ultimately, this comes down to the hiring dilemma we often discuss: speed, cost, and quality. You may only be able to optimize two of these three factors at any given time.

75% of all companies surveyed, regardless of size, stage, or funding, hire outside of the U.S.

U.S. companies that hire exclusively domestically are less likely to adjust for cost of living—perhaps a potential statement about the competitiveness of the U.S. hiring market and the relative stability of cost of living compared to international locations, while U.S. companies that hire internationally are evenly split.

All internationally located companies hire outside the US, and most do not adjust for cost of living.

Companies tend to hire less outside the US at later rounds, however, it is worth noting that the majority of respondents for this particular analysis are based in the US.

While most companies adjust for local market rates, Infrastructure companies (which all hire internationally and are among the largest and most resourced in this survey) are most likely to use a more intensively stratified geographic approach.

There is a clear trend here: most companies do not adjust for cost of living in the early stages, but are increasingly likely to do so as the company matures.

Seed and pre-seed companies with 1-10 employees are less likely to adjust for cost of living, which allows them to be more competitive in hiring because building a solid core team at this time will have a profound impact throughout the life of the company.

In addition, they may lack the operational expertise or resources to deploy more complex compensation structures and budgeting strategies, and may not hire in as many places.

The likelihood of adjusting for cost of living increases particularly sharply over time as the company size increases.

Paying local market wages is preferred across nearly all company sizes, stages, and funding levels, indicating its appeal as a fair, competitive cost-of-living adjustment approach (it’s also the easiest approach short of temporarily dealing with “undefined.”).

Note that once a decision is made, it’s difficult to reverse a cost-of-living adjustment and remain fair, and doing so can impact employee morale, perceptions of fairness, and company brand.

Payment Methods (Fiat vs. Crypto)

In most cases, companies pay in fiat.

International companies are at the forefront of paying in cryptocurrencies (e.g., USDC), especially when it comes to paying international employees. U.S. companies are more likely to pay contractors in crypto than employees, regardless of location; they are also more likely to pay international employees in crypto, regardless of whether they are employees or contractors.

Companies often pay in crypto internationally to simplify cross-border transactions, mitigate currency fluctuations, and/or take advantage of tax benefits in certain jurisdictions. Crypto payments can also be useful for companies with employees spread across geographies with limited banking infrastructure or that require privacy (e.g. companies with anonymous contributors).

As cryptocurrency regulations and the legal distinction between employees and contractors evolve, global employee payroll providers such as Liquifi are easing adoption by building compliance into their services and natively supporting cryptocurrency transactions, which we would not be surprised to see have an impact over time.

Likelihood of Companies Owning Tokens

Companies in our portfolio are strongly considering tokens, with only 14% stating explicitly that they would never launch a token.

International companies are more inclined to adopt tokens, with a higher percentage of companies owning tokens or planning to launch tokens. While some companies are uncertain about future plans, no company has completely ruled out the possibility.

US companies, perhaps considering the regulatory environment, have a more diverse response, with fewer companies owning actual tokens, more teams hesitant about their plans, and more teams choosing not to adopt tokens altogether.

Overall, infrastructure companies lead in token adoption, with over three-quarters either having a token in use or planning to launch one. These companies are likely to use tokens as base currencies (particularly for L1 and L2 blockchains).

Gaming companies are next, highlighting the growing importance of tokens for in-game assets, currencies, rewards, incentives, gated content (special content that requires tokens to unlock), and occasionally governance. The DeFi space also stands out, with tokens tied to governance, staking, and rewards business models.

Consumer-oriented companies show initial interest, often integrating tokens into more traditional business models, while there is a lot of uncertainty in the “other” category.

While the data generally suggests that companies are more likely to plan and launch tokens as funding, stage, and size increase, these factors do not form a simple narrative.

Small startups, especially those in the seed stage, with $1 million to $4.9 million in funding, are interested in exploring tokenization, but few are launching tokens at this early stage. As companies grow in headcount and raise more funding, there is a clear upward trend toward launching tokens, which is particularly evident in the Series A and B rounds.

Companies with $20 million to $40 million in funding are a special case, actively planning to launch tokens, but none have actually launched a token. They fall into the Seed, Series A, and Series B rounds.

For the largest companies, with more than $40 million in funding and more than 100 employees, the percentage of token activity is significantly higher. An interesting counterexample is the hesitancy of Series C companies; they may be reflecting on how a token fits into an already mature product or considering using a token in a new project/venture.

Relatedly, 75% of all companies that raised more than $40 million (the highest funding range in the report) are focused on infrastructure development, an area that is inherently capital-intensive and often integrates tokens into their products.

Token/Equity Compensation Plans

Companies typically offer compensation in one of several ways: salary plus equity, tokens, or a combination of the two. When planning compensation or evaluating offers, it is critical for both founders and candidates to consider how the company generates value and whether that value is in tokens or equity.

Nearly half of companies offer only equity as compensation. However, it is important to note that most of the companies that said they might launch a token in the future (but are not sure yet) currently offer only equity, while all projects with active tokens offer tokens as part of compensation. It is important to consider that the companies that are unsure may eventually change their minds.

We have seen other reports that show that fewer companies are offering tokens as compensation over time, and we are curious to see how this trend will emerge as our own data accumulates.

Both US and international companies offer a mix of equity and tokens as compensation. However, beyond that, preferences differ: more US companies offer only equity, and more international companies offer only tokens (as mentioned earlier, international companies seem to prefer tokens in general).

While infrastructure companies are the most likely to have or plan to launch tokens, the majority of infrastructure companies offer only equity, rather than only tokens or a mix of the two.

The DeFi space (another space where tokens are more prevalent) follows a similar trend, though compensation approaches are slightly more balanced. Gaming companies show a strong preference for offering both equity and tokens, and it’s worth noting that no gaming company offers only tokens.

All consumer and other types of companies either don’t know if they will launch a token or ultimately plan not to, so it’s understandable that the vast majority of companies only offer equity.

Looking at factors such as funding amount, company stage, and company size, we note the following:

First, the earliest stage startups primarily use equity incentives, and as companies receive more substantial seed funding, their compensation strategies diversify.

At the Pre-Seed stage, we see that all companies only offer equity incentives (as mentioned earlier, all Pre-Seed companies surveyed don’t know if they want to launch a token). A few companies that raised $1 million to $4.9 million in seed rounds are starting to offer token incentives, but overall, they are still equity-based.

Companies that raised $5 million to $19.9 million are generally still in the seed round and have more than 10 employees. Overall, more companies are starting to offer token incentives, and they are also more frequently offering a mix of equity and token incentives.

Second, as the number of employees grows, companies are generally more likely to offer both equity and token incentives.

Token vs. Equity

Most companies offer tokens in proportion to equity (which may indicate that they use the “token ratio” calculation method described below).

U.S. and international companies are evenly split on the token vs. equity ratio, but with a slight preference for a proportional ratio.

The preference for a proportional ratio is also relatively balanced across company types, with infrastructure companies and “other” companies equally represented.

Early-stage, smaller teams (seed rounds, 1-10 employees) prefer a proportional split of equity and tokens (however, this trend is not consistent across all funding levels for early-stage rounds).

As companies grow, the preference for proportionality moderates, and no clear dominant strategy emerges.

Token Calculation Methods

In a previous post, we researched and outlined the methods companies use to calculate the number of tokens to give to employees. This report is not intended to be a thorough exploration of the best methods, nor does it cover all methods.

That being said, the most common and well-defined methods we see are:

· Market value based: Teams with active tokens use this method to first determine the total dollar value they intend to offer to employees, then they calculate the number of tokens to be awarded based on the fair market value of the tokens at the time of calculation, grant, or vesting. In the mentioned article, we observed that most teams prefer this method due to its simplicity and ease. However, we recommend using this method with caution, as the value of token grants can fluctuate wildly due to market fluctuations, resulting in discrepancies in the token market cap table. In this sense, tokens are somewhat similar to public stocks, but they lack the same protections and stability. It is not common for teams without active tokens to adopt this valuation method. Typically, we see them relying on verbal agreements to promise future tokens based on equity distribution ratios. Another method is to perform a market value calculation for the fully diluted value of future tokens locked up by the venture capital firm. Given that the token price of the venture capital firm is fixed, this provides a fair basis for compensation before the token is publicly available (interestingly, we have not heard of any company doing this);

· Token Proportion: This approach attempts to mimic the way traditional startups calculate equity-based awards. It is the only approach that takes into account market volatility and mitigates unfair employee compensation, while minimizing unnecessary token dilution and preserving asymmetric upside for employees. Effective use of the Token Proportion approach requires diligent planning, which should ideally begin at an early stage. In summary, you can use the same allocation intervals as used for equity and adjust based on the specifics of the tokens, ultimately awarding a fixed proportion of the token pool;

"Other" approaches may include annual grants, performance-based bonus structures, using a sliding scale between equity and tokens, and indefinite approaches.

In summary, most companies use the "Token Proportion" approach.

There are clear differences in geographical distribution, with US teams more likely to use the "Token Proportion" approach.

There are also differences in preferences for token calculation methods across industries: Gaming and other types of companies prefer the "token ratio" method, while infrastructure companies prefer the market value-based method.

As the size of financing and the amount of funds raised increase, the number of companies using the market value-based method increases.

Seed round companies and companies with financing amounts of less than $40 million mainly use the "token ratio" method. The market value-based calculation method is more popular starting from Series A financing, especially among companies with 21-50 employees, and is more common in Series B financing and companies with more than 100 employees. Notably, companies with financing amounts of more than $40 million tend to balance the use of market value-based calculation methods and other less explicit methods.

We recommend that early-stage teams use a "token ratio" approach. While we intuitively understand why later-stage teams might prefer a market value-based approach (e.g., once a token price is established, its price may be less speculative and more data on time-weighted or volume-weighted averages may be available; or it may give them more flexibility with their remaining token reserves), we are working with teams to understand the reasons for this trend.

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