Practical Guidelines for Building (and Protecting) Your Option Pool
Equity is one of the most powerful tools early-stage founders have to attract and retain key team members. In the early days, you won’t be able to match the salaries offered by big companies. What you can offer is something arguably more valuable—ownership in the upside your team helps create.
When structured well, an employee stock option plan (ESOP) not only helps you win top talent, it also keeps them motivated and aligned while positioning you for fundraising without painful re-negotiations.
👉 Haven’t read it yet? Check out Part I: Common Approaches to Option Allocation for a breakdown of different methodologies founders use to distribute equity. In this follow-up, we’ll share practical guidelines on how to size, budget, and manage your pool based on what we’ve seen work—and not work—across dozens of startups.
1. Anchor Your ESOP Pool to Market Data
One of the biggest mistakes we see is founders creating a pool in a vacuum. Without benchmarks, you risk being too generous (over-diluting yourself and your investors) or too stingy (struggling to land hires).
Industry data—like Carta’s equity benchmarks—provides useful ranges by stage and role. At seed stage, we typically see employee stock option pools sized at 15–20% of fully diluted equity. Too small (<5%) and it won’t move the needle for hires. Too large (>50%) and you’re giving away more than you need to.
Here are typical ranges we see for a given role in early-stage companies:
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- C-Suite: 1.0% – 2.0%
- VPs: 0.5% – 1.5%
- Directors: 0.3% – 1%
- Managers: 0.1% – 0.75%
- Other employees (junior/non-exec): 0 – 0.25%
2. Treat Your ESOP Like a Budget
Think of your pool like a bank account—you wouldn’t spend cash without a budget, and you shouldn’t allocate equity without one either.
Map out your next 12–18 months of hiring. Assign equity ranges to each role, factor in refreshes for retention, and add it up. That gives you a clear view of whether your pool is sufficient or needs adjustment before your next financing.
3. Stay Consistent with your ESOP Strategy (With Rare Exceptions)
Once you’ve set a plan, stick to it. Ad hoc decisions—like oversizing a grant, extending expirations, or accelerating vesting—may feel generous in the moment, but they create long-term headaches and fairness issues.
Exceptions should be rare and intentional (a critical hire, a unique retention case), not the norm.
4. Keep ESOP Valuations Current
An ESOP only works if both sides understand what the options are worth. Valuations set strike prices, keep you compliant, and give employees transparency into the upside. Plan for at least annual valuations, or sooner if you’ve raised a round or had a material business change.
The Bottom Line: Building a Sustainable Employee Stock Option Plan
Equity is one of your sharpest tools—but only if you use it with discipline. Size your pool using market benchmarks, budget it like cash, apply it consistently, and keep valuations current. That’s how you attract the best, keep them engaged, and stay out of trouble with investors down the road.
At BrightIron, we’ve helped dozens of founders design ESOPs that balance competitiveness with sustainability. If you’re planning or refreshing your option pool, we’d be happy to help you avoid the pitfalls and get it right.
👉 Want to explore different methodologies? Read Part I: Approaches to ESOP Allocation.
