# Employee compensation: A founder's guide to compensation packages Author: The Carta Team \| Read time: 12 minutes Published date: March 26, 2026 Learn how to build a competitive employee compensation package to attract top talent and stay compliant as you scale. ## What is employee compensation? Employee compensation is the total value an employee receives in exchange for their work, time, or services. This includes their salary, benefits, and bonuses—and for a startup, the most important component: [equity](https://fund-forecasting@carta.com/learn/equity/). It represents the full value an employee receives, encompassing immediate cash, long-term incentives, and non-monetary benefits that align with your company's goals. While it sounds simple enough, compensation quickly becomes complicated. Getting compensation wrong or failing to properly invest in your employees can be the difference between a thriving company and a failed startup. In the broader private sector, the split between [wages and benefits](https://www.bls.gov/news.release/ecec.nr0.htm) shows that benefits make up a significant portion of an employee's total compensation package, reinforcing the need to present a complete offering. While equity has historically been a primary lever for attracting top talent, the compensation equation is changing. In today's uncertain economy, many [employees want cash](https://fund-forecasting@carta.com/data/equity-compensation-2024/) for its immediate security... ## Types of compensation A compelling compensation package is made up of a few key parts including base salary, bonuses, equity, and benefits. Understanding how these elements fit together allows you to create a package that is both competitive and sustainable for your startup's stage of growth. A well-structured package thoughtfully balances an employee's need for immediate financial stability with the long-term upside that makes joining a startup so exciting. Below is a high-level overview of the four main components and their purpose. - **Salary**: This is the most straightforward part of the compensation package. It covers an employee's predictable base pay. - **Bonus**: This includes [variable compensation](https://fund-forecasting@carta.com/learn/startups/compensation/variable-compensation/) like performance-based bonuses and other incentives. - **Equity**: This is a share of ownership in the company, typically offered to employees in the form of [stock options](https://fund-forecasting@carta.com/learn/equity/stock-options/) or [restricted stock](https://fund-forecasting@carta.com/learn/equity/rsu/). - **Benefits**: These are the non-cash perks that support an employee's health and well-being. ### Direct compensation vs. total rewards Direct compensation is strictly salary, bonuses, and equity. Total rewards encompasses compensation plus benefits. | | | | --- | --- | | **Compensation** | **Total rewards** | | Salary | Salary | | Bonus | Bonus | | Equity | Equity | | | Benefits | ### Direct compensation Here are some considerations to keep in mind when determining direct compensation: ### Base pay Base pay or base salary is the fixed, reliable income an employee receives, typically paid on a regular schedule. This is the foundation of any compensation package... ### Variable pay (bonuses and commission) [Variable compensation](https://fund-forecasting@carta.com/learn/startups/compensation/variable-compensation/) is a payment that is typically performance-based and therefore is subject to change between payout periods. ### Equity For startups competing with large, established companies for talent, offering equity as part of a compensation package is a key advantage. [Equity](https://fund-forecasting@carta.com/learn/equity/compensation/) allows you to offer ownership and a stake in the company's future success... ## Total rewards (Indirect compensation) Employee retention generally comes down to more than just compensation. It often takes into account benefits, development opportunities, and company culture... ### Employee benefits packages A strong employee benefits package shows job seekers you care about their well-being, mental health, career growth, and work-life balance... ## How to build a competitive compensation package This section provides a step-by-step process for creating a thoughtful and strategic employee [compensation plan](https://fund-forecasting@carta.com/learn/startups/compensation/compensation-plans/)... ### Step 1: Define your compensation philosophy Creating or updating any compensation program starts with a clear [compensation philosophy](https://fund-forecasting@carta.com/learn/startups/compensation/compensation-philosophy/). ### Step 2: Benchmark salary and equity with real-time data One of a founder's biggest fears is not knowing what a competitive offer looks like... ### Step 3: Design your equity plan to attract owners, not just employees A strong equity plan is about more than just granting a certain number of options... ### Step 4: Create the offer and communicate its total value When you're ready to make an offer, don't just send an offer with a salary number... ### Step 5: Regularly review your compensation Regularly [reviewing your comp plan](https://fund-forecasting@carta.com/learn/startups/compensation/compensation-plans/review/) based on factors... ## Compensation packages: Terms to know A compensation package is what you offer or present to employees and candidates, typically in the form of a total compensation or a total rewards statement. ### Total compensation statement A [total compensation statement](https://fund-forecasting@carta.com/learn/startups/compensation/total-rewards-statement/) shows employees the full current and future value of their compensation packages... ### Compensation bands A [compensation band](https://fund-forecasting@carta.com/learn/startups/compensation/bands/), or salary range, is an upper and lower range of compensation... ### Salary benchmarks [Salary benchmarks](https://fund-forecasting@carta.com/learn/startups/compensation/benchmarking/) are a standard way to measure the market rates for given roles. ### Pay transparency Setting comp expectations avoids wasting employers’ and candidates’ time during interviews and negotiations... ### Offer letter An [offer letter](https://fund-forecasting@carta.com/learn/startups/compensation/offer-letter/) is a document sent to a prospective employee that officially offers them a role. ### Job leveling structure [Job leveling structure](https://fund-forecasting@carta.com/learn/startups/compensation/job-leveling/) is how you define roles and leveling... ## Total Rewards At Carta, we’re changing the way companies think about compensation... ## Frequently asked questions about employee compensation After learning the basics of employee compensation, founders often have a few common follow-up questions... ### How is employee compensation different for an LLC? LLCs don't issue stock; instead, they use [equity incentive plans](https://fund-forecasting@carta.com/learn/startups/compensation/equity-incentive-plans/)... ### How do you create a compensation package for a sales role? A compensation package for a sales role typically has a lower base salary and a higher variable component... ### How do you explain equity to a candidate? When explaining equity, use simple analogies that focus on the concept of ownership and the potential for growth as the company succeeds.