Question of the Day: Salaries or Equity, what's worth more?

Google has paid notoriously low salaries, in exchange for stock options, to its rank and file long since before the stock was north of $600 a share. Well, today’s Question of the Day is about such employee compensation, from a would-be founder named Alex. Alex would like to know whether it’s wise for him to give away equity so he can pay early employees an attractive salary, OR if — following the Google model — he should only hire those employees who’d take equity in lieu of a nice paycheck?

How will this compensation decision influence Alex’s company culture early on? And what should be worth more to him at this stage: cash to pay his staff, or keeping his equity “in house”?

Dear Found|READ,
I am a considering a startup and it’s just me at the moment. I think that I’ll need 2 others — both developers — to start. The only funds I have are my savings. Whilst I known I can live on savings for a year or so, I obviously don’t know whether the others can. So should I:

a) Get seed funding, and loose X% of the firm to the financier straight off, and then pay a “normal salary” to the others?

OR

b) Offer that same X% to the employees, splitting between them what I would’ve given the investor, and save my cash, paying each employee next to zero salary?

Similarly, if I’m going to give away my equity, what is the best way to go: loose an equity stake to a single seed financier, or give that equity stake to 2 or 3 early joiners?

I don’t think I’ve seen these questions asked before and it would be good to know what your readers think please?
— Alex

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