Equity Isn't Compensation

In Parts 1-3 of this series, I talked about the startup dream, decoding startup job ads, and making informed bets. But there's something I danced around that deserves its own conversation.

It's the central conflation at the heart of most startup job postings: treating equity as if it were compensation.

"Competitive salary plus equity" sounds like one thing—two forms of payment. But that framing is fundamentally misleading. Equity and salary aren't the same category of thing. They don't belong in the same sentence connected by "plus."

Understanding this distinction isn't just semantics. It's the difference between evaluating opportunities clearly and getting pulled into arrangements that don't serve you.

What Equity Actually Is

Let me be direct: equity is not compensation for work performed.

Equity is ownership. It's a stake in something. It's skin in the game.

When you receive equity, you're not being paid—you're becoming a partial owner. That's a fundamentally different relationship than exchanging time for money.

When a startup offers you "equity compensation," they're offering you a piece of ownership. That ownership might be worth something someday. It might be worth nothing. But either way, it's not payment for services rendered.

This distinction matters because it changes how you should evaluate the offer.

The Spec Work Parallel

Here's a concept that might help: spec work.

If you've worked in creative fields—design, writing, advertising, photography—you know what spec work is. It's when someone asks you to do the work first, with the promise that you'll get paid (or get more work) later if they like what you produce.

"Design our logo. If we use it, we'll pay you."

"Write this article. If it performs well, we'll commission more."

"Shoot our event for free—it'll be great exposure."

The linkage between work and reward is weak. Often it's imaginary. You're being asked to provide real value now based on a vague promise of future value that may never materialize.

Spec work is generally considered exploitative in creative industries. Professional associations warn against it. Experienced practitioners refuse it. The consensus is clear: real work deserves real payment, not promises.

"Work for below-market salary now. If the company succeeds, your equity will be worth something."

"Take a pay cut for two years. If we get funding, we'll make you whole."

"The equity is the real compensation—the salary is just to cover your bills."

It's the same structure. Real work now, in exchange for potential future reward with a weak linkage.

I'm not saying equity is worthless or that working for equity is always a bad deal. But I am saying we should call it what it is: a bet, not a payment.

Why We Fall For It

There's something in human nature that makes future gains feel more valuable than present realities.

A guaranteed $100,000 salary feels... ordinary. But equity that might be worth $500,000 in five years? That's exciting. That's the dream. That's how you get ahead.

This is a well-documented cognitive bias. We systematically overvalue uncertain future gains and undervalue certain present compensation. Lottery tickets exploit this. Casinos exploit this. And startup equity—whether intentionally or not—exploits this too.

It taps into something deep: the desire for a windfall. The hope that we'll be the one who beats the odds. The fantasy of not having to grind anymore because we got in early on something big.

Commission-only sales roles work the same way. "Your earning potential is unlimited!" Sure. But your guaranteed income is zero.

Gig economy promises work the same way. "Be your own boss! Make your own hours! The freedom is priceless!" Meanwhile, you're absorbing all the risk, handling your own taxes, and one algorithm change away from losing everything.

They're Not Predators—They're Copycats

Here's where I want to be careful: most startup founders offering equity-heavy packages aren't trying to exploit anyone.

They're copying what they've seen. They're doing what other startups do. The templates all look the same. The job boards are full of similar postings. This is just how it's done.

First-time founders especially may not have thought critically about whether their compensation model is fair. They're operating on a mix of:

• Limited cash (real constraint)
• Belief in their vision (genuine)
• Assumptions about what "startup jobs" look like (copied from others)
• Hope that everyone wins if the company succeeds (optimistic but uncertain)

The result is an ecosystem of similar-looking offers that all treat equity as compensation because everyone else does. Not predatory—just unconsidered.

But unconsidered isn't the same as fair. And the fact that everyone's doing it doesn't make it right.

What Fair Actually Looks Like

So if equity isn't compensation, what role should it play?

I think equity makes sense as what it actually is: an ownership stake offered to people who want to be owners.

That might mean:

• Market-rate salary PLUS equity: You're being paid fairly for your work AND offered ownership because the company wants you invested in the outcome
• Below-market salary with explicit risk acknowledgment: You understand you're taking a pay cut, you can afford it, and the equity is compensation for the risk you're taking—not for the work you're doing
• Equity as investment: You're essentially investing your time the way someone else might invest money—with clear-eyed understanding that most investments fail

What doesn't make sense:

• Equity as salary substitute: "We can't pay you market rate, but the equity makes up for it" (no it doesn't—the equity is speculative, the salary cut is certain)
• Equity as the real prize: Framing equity as so valuable that salary is almost beside the point (if it's that valuable, they could sell some and pay you fairly)
• Equity as proof of commitment: "If you really believed in us, you'd accept equity" (that's manipulation, not compensation philosophy)

The question isn't whether to accept equity. The question is whether you're being honest with yourself about what it is.

The Ownership Question

Here's a reframe that might help: when evaluating a startup opportunity, ask yourself separately:

If the answer to both is yes, you might have a good opportunity.

If you're only saying yes because the equity makes up for the low salary... be honest with yourself. You're making a speculative bet, not accepting a compensation package.

And speculative bets should be made with money you can afford to lose—or in this case, income you can afford to forgo.

The Test I Mentioned Earlier

Back in Part 1 of this series, I proposed a simple test: would you still want this job if the equity was worth zero?

This is the same question from a different angle.

If the equity disappeared entirely, you'd be left with the job and the salary. Is that enough? Is it close to enough?

If not, you're essentially buying a lottery ticket with your labor. That might be fine if you can afford it. But don't confuse it with being paid fairly.

What This Means for You

If you're evaluating startup opportunities:

Evaluate salary independently. Don't let equity subsidize a salary that doesn't meet your needs. The salary is certain. The equity is not.

Understand what you're actually being offered. Equity is ownership, with all the risk that implies. Make sure the ownership stake is real, properly documented, and actually meaningful.

Know your risk tolerance. Some people can afford to bet. Others can't. There's no shame in needing stable income. That's most people.

Watch for the conflation. When someone says "total compensation" and bundles salary with equity value projections—be skeptical. Projected equity value is speculation dressed up as math.

Recognize the pattern. Spec work, commission-only, unlimited earning potential, equity-heavy packages—they all shift risk from the company to you. That's not inherently wrong. But it should be explicit, not hidden.

One More Thing

I want to end with something that might seem contradictory.

I've taken equity. I've worked for below-market salaries at startups I believed in. I've made bets that didn't pay off and a few that did.

I'm not saying never take equity. I'm saying understand what it is.

And that clarity—that's worth more than any equity grant.

New to this series? Start with Part 1: The Startup Dream, Part 2: Decoding Startup Job Ads, and Part 3: Making an Informed Bet.

Thinking about starting your own thing? Our Build Something series explores when entrepreneurship makes sense.