Hiring Your First Employee — The Stock Option vs. Salary Trade-off

#What Your First Hire Really Means — Outsourcing a Slice of the Co-Founder Role

Your first employee is, in effect, someone taking on a slice of what a co-founder would do. That calls for a bigger compensation package than a typical employee gets, and just as much scrutiny on trust and core competence. An option grant of 0.5% to 2% is the typical range.

#Market Salary vs. Options — A Trade-off Model

Example: to hire a developer whose market salary is ₩70M at ₩50M, you need to make up the ₩20M annual gap × 4 years = ₩80M in option value to balance the offer. The required option percentage depends on your company's valuation and expected growth rate.

#Standard Option Terms

1. Vesting — 4-year vesting with a 1-year cliff (the most common standard)
2. Strike price — set relative to the company's value at grant time (the lower it is, the better for the employee)
3. Exercise window — typically 5-10 years; the post-departure exercise window needs to be spelled out separately
4. Acceleration — some unvested equity accelerates on an acquisition or termination (negotiable)
5. Transfer restrictions — the company gets right of first refusal if options or shares are transferred

In Korea, granting stock options requires amending the articles of incorporation, a board resolution, and registration with the company registry. The timing of exercise and the strike price are also subject to specific treatment under Korean tax law, so review by a lawyer and tax accountant is essential.

#How to Explain the Value of Options Well

Telling a candidate 'you'll get 1% in options' doesn't convey real value on its own. Walking through these four steps helps them understand what the options are actually worth.

1. Current company value (pre-money) → the nominal value of 1% in options today
2. Next-round scenarios (best/base/worst case) → how option value could evolve
3. Vesting, exercise timing, and strike price → when they could actually realize the value
4. Exit possibilities (M&A/IPO) → the path to actually cashing out

#Five Common Mistakes

1. Deciding the option percentage on the spot — skipping the option pool and board approval process
2. Setting the strike price at ₩0 or unrealistically low — creates tax and legal risk
3. Skipping the vesting clause — options stay fully intact even if they leave after one month
4. Not following through on registration and articles-of-incorporation changes after granting — weakens legal enforceability
5. Not specifying the post-departure exercise window — a future dispute waiting to happen

#Self-Check Checklist

1. Is your option pool (ESOP) large enough? (typically 10-15%)
2. Does the first hire's option grant fall within the range appropriate for their stage and role?
3. Does the contract specify 4-year vesting with a 1-year cliff?
4. Is the strike price set reasonably relative to the company's value at grant time?
5. Is the post-departure exercise window specified?
6. Has a lawyer reviewed the articles-of-incorporation changes, board resolution, and registration process?
7. Have you transparently shared the cap table, valuation, and scenarios with the candidate?