Suppose I got an offer from a startup that currently has funding to start hiring employees. Suppose they are offering a $100K total compensation package, such that I can choose to take a reduced salary for the equivalent in stock options (up to a certain limit). So if I am aggressive I can go $50K cash salary and $50K options a year (meaning $200K worth of options vested over 4 years with one year cliff). Suppose the current valuation of the company is $4 million, so that means I can own up to 5% of the company (and they are ok with me owning this amount, as I will be joining as one of the first few employees.)
Suppose $100K is below my current market rate, so it seems I will not only be getting a pay cut, and then additionally exchanging my salary for equity. They mentioned that their other potential hires might also be taking even larger cuts (based on the total compensation).
Is this practice typical for startups?