In my opinion, you should take the difference between their market salary and the salary they're being offered, and consider that an investment by the employee at the upcoming (not past) valuation.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.
I think what you are actually describing is that you should value equity at zero. If to work at a startup you would need 28% equity you are describing a founder. That's fine but there is an enormous difference between these two things. There is also the question of where the $125k comes from to pay your base.
Value equity at zero? I am not sure what you mean by that. If an employee sacrifices $500k to work at your company, then it would make sense to compensate them with $500k worth of equity is my point. The 28% is tongue in cheek, if you're so early that the amount of equity needed to compensate your first hire adequately is 28%, your company hasn't really started yet, and maybe you should just consider them a founder.
Bingo - if you need the kind of person whose market rate would be 28% of your company. They are a founder, if your don’t need that person… fine, but the “this is the industry standard” line is bogus.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.