employed people do not receive equity as part of their compensation package and
are perfectly happy as long as they feel they are being paid what they deserve.
The “perfectly happy” price is the fair market value of their time as long as their work for the startup is
similar to what they would do for someone else at a fair market rate.
For example, if a person is “perfectly happy” making $50,000 a
year as a marketing executive, they should be willing to accept a similar
amount for similar work at a startup (to be paid in Pie). However, if that
person is leaving their job as a marketing executive to flip burgers at a burger
startup, the fair market rate would be the rate at which the person would
otherwise be paid to flip burgers at a similar establishment. Big companies,
like McDonalds or In ‘N’ Out Burger, are likely to have a significant influence
on the fair market rate for burger-flippers.
A Slicing Pie salary negotiation, therefore, is like any other salary
negotiation. A manager should ask herself, “If
I could pay cash for this person’s services, how much would I pay?” A potential
employee should ask himself, “If this
company paid me and did not give me equity, how much would I be perfectly happy
to accept?” If there is overlap between these two numbers, a deal can be struck;
if not, you can part ways as friends.
When the company eventually has enough money to pay people for
their services, it can pay part or all of the salary and reduce, or eliminate,
the allocation of slices. This isn’t the same things as buying back slices; it
just reduces the amount of additional slices the person would deserve going
forward. For instance, if you paid $20,000 of a fair market salary of $50,000,
the person would be risking $30,000. The more cash you pay the less risk the
person takes and the fewer slices are allocated for the time she contributes.
If you pay 100% of her fair market salary she would contribute zero slices.
Once you agree on the fair market salary for your job, you will
want to convert the annual salary into an hourly rate. Do this by dividing the
entire amount by 2,000, which is roughly the number of working hours in a year
(40 hours times 50 weeks). I assuming at least two weeks of vacation time.
On a side note, I recommend an open vacation policy. This means
people can take as much time off as they need as long as their work is getting
done. This not only treats people like adults who can manage their own time,
but also it avoids the problem of managing slices for paid time off.
In most cases, the amount of time people spend on the startup
varies dramatically. It is not uncommon for some founders to spend 80 hours a
week while others spend less than 10 as they juggle startup work with their day
jobs. It is for this reason that you have to create an hourly rate.
Participants will simply track the hours they spend working to determine the
fair market rate of their contribution of time:
Fair Market Value of Time = Hours x Hourly Rate
You can also calculate a Slices Per
Hour which will show you how many slices you contribute with every hour you
Slices Per Hour = Hourly Rate x Non-Cash
This is the part of the program that some people find concerning
(sometimes). The first thing that people don’t like about this calculation is
the thought of tracking their time. Most people, including me, don’t like
tracking their time. However, few things will give you better insight into what
is going on with your startup company than a time report. If you don’t know
what people are spending time on, then you probably don’t have a good handle on
Most time-tracking systems, including the online Pie
Slicer, will ask for notes on what was done during the time logged. Your time
log reports are an excellent coaching
tool for helping people better manage their time and become more productive.
Not long ago, I spoke to an entrepreneur who was frustrated with
his company’s inability to generate revenue—a common complaint among startups.
Because he was using the Slicing Pie Model, he had fairly detailed records of
his time. A quick review of the reports showed that very little of the teams’
time had been spent on selling. Most of their time had been spent on
development, customer service, research and other administrative tasks. They
turned their attention to getting out and selling and within a few weeks they
had some new customers. Without a good understanding of how time was being
spent, this guy may still be scratching his head.
The next thing that people worry about with regard to time
tracking is the productivity of the time spent. People are afraid that an
unscrupulous coworker can simply log a bunch of hours and not do any work.
Time reports will not only tell you what someone is focusing on,
but how productive they are. If someone is taking a lot of time to do simple
tasks, you have a management issue with that person; it is not a flaw in the
Slicing Pie model. If you have a chronic time-waster, you may have grounds for
termination with cause (more on this later). In the Slicing Pie Model time
tracking, therefore, discourages time-wasting rather than encourage it.
On the flip side of the productivity concern is the concern that
time doesn’t equal value. And, people with more experience may be more
productive than less experienced people. Remember that a contribution is what
it is. Time spent on a startup does not magically make it more valuable. You
are expected to perform at the same level for a startup that you would be for a
real job. More experienced people usually have a higher hourly rate, which
encapsulates their skills and expertise. You pay more for good employees
because they can produce more for less money. You also pay more for good
employees because they are supposed to come up with more great ideas than other
The next major concern I hear about time tracking is the concern
that there is much more to building value in a company than simply logging
hours. That is true, but without time-tracking you will never understand one
person’s contribution relative to another. One person may work full time and
another a few hours per week. Unless you want to guess what each person is doing you should keep track.
You don’t have to account for every
minute of every day. You and your
team can decide how much granularity you will accept. Some teams may be
comfortable with a monthly entry that says “120 hours: did stuff,” other’s may
want more detail. I personally like to know what people did with the time they
If you still have a problem with time tracking, then you’ll have
to figure out some other way to accurately measure the fair market value of a
person’s time. I’ve heard lots of ideas; so far, none works as well as time