I think that people fail to think about compensation broadly enough. This tweet is typical:
Compensation isn't salary. It isn't even salary + incentive comp + equity + benefits. Compensation is all of those things + growth. In a startup, you are usually at a cash disadvantage in recruiting but you have the power of equity and, just as important, the power of growth.
I often hear from founders and CEOs of earlier stage companies that they can't bring on a senior hire they need because they don't have the cash. In that case, you can be outrageously generous with equity. I'm consistently surprised by an unwillingness of an entrepreneur who is stuck in neutral to share significant equity with someone who has the potential to get them moving. The equity will vest, so there is very little downside in giving someone 10, 20, or even 50% of your company in that case.
Beyond senior hires, the magic is growth. Trying to convince a young marketer to join my company Real Food Works, I said "I can't guarantee you job security, but I can offer you career security." It sealed the deal and it was true–he's a VP of Marketing now. Out of college I started as a secretary to a VP of Sales for a SF-based startup then called Dial Info, later Automated Call Processing, and ultimately MCI. In four years I went from being a secretary to running a market, to running East Coast operations, and then to becoming a product manager. The opportunity for that kind of trajectory has value–it's compensation.
Finally, a personal commitment to help someone grow has value. Being a good coach as well as manager will attract people because it has value to them. It's compensation.
The flip side of this approach to selling value as an employer is how to assess a job as a candidate. Look at the numbers, then add the opportunity for growth.
And a related note on internships. Until just a few years ago I was a dogged supporter of unpaid work, because I weighed the value of growth so heavily. And then I was enlightened by the argument that unpaid work is discriminatory, because disadvantaged people can't do unpaid work. Duh! I worked from age 15 and certainly couldn't have worked without pay. So, pay people a living wage and give them decent benefits–then add all the growth they can handle.
I've started and/or run too many venture capital-backed software companies, plus one ill-fated food startup.