Let's say I am creating a piece of mobile software and I need another developer and artist to work on it with me. Assuming they are willing to work for compensation that is not immediate, what are my best options for these employees?
Off the top of my head I can think of only two methods:
-Ownership in the company
-Guaranteed portion of potential profits / revenue
This is a difficult thing to do. I suggest you look into http://slicingpie.com/ . You see the problem is that you find someone and they say what they can do but may not actually be capable of achieving or you can not work together. So I suggest that you say that the use of pie will start after a period of effort that is short but long enough to get an idea if the fit is correct. They should be receptive to this. Then pie is an approach of using one metric. It may not be ideal but it is clear and easy to understand so you should not get into legal problems. If this person is creating IP then you need to discuss that also. One problem is that an idea that applies to your specific problem may have a much broader range of application. Who owns the broader range and who does the IP be treated to address it. What happens if the broader range actually has a higher value then your niche? Get a lot more difficult if you want more then just hands.
Be careful. Equity is good because there is no downside to you if the company fails. When you cross to cash compensation they may. be able to construct this as an employee-employer relationship and you could be subject to wage/hour rules. Yes, I got burned on one of these in Seattle ( the COO did not document the arrangement) Yes, your Board is also exposed.
If I'm asked to join as a technical co-founder for equity only, one of the main incentives is scaling back the MVP so that I don't invest too much time. Equity is fine, but 0% of nothing is nothing. Other incentives are things like flexibility in time, allowing me to freelance half the time so I can pay my mortgage, etc.
You won't find any *employees* willing to work for free, but you should be able to find *co-founders*, but that would result in pretty high equity sacrifices. I wouldn't accept anything under 30% as a technical co-founder, for example.