Seth Levine of the Foundry Group has a blog post up today on CEO and founder salaries. His data is US based and it ties pretty well with what we see over here. Apparently these numbers are based on ‘hundreds of data points’ and hold for all areas of the US, including Seth’s home in Boulder, New York and San Francisco:

companies that have raised $1M or less tend to pay their CEO between $75k and $125k (skewed very much to the low end of that scale – companies that have raised less than $500k tend to top out at $75k for CEO comp). Companies that have raised between $1M and about $2.5M tend to pay their CEOs around $125k. Companies who have raised above that amount skew up from there

I’ve been saying for years now that founder salaries should start at these sorts of levels and then rise to what would be market for the skillset in a larger company environment as the company gets to scale and/or profitability. That makes sense to me because higher salaries earlier on have a disproportionately large impact on the amount of cash left for other hires, and less people in the company means slower progress and slower appreciation in value. If a founder has a decent shareholding and believes in what he or she is doing then they wouldn’t want to trade higher salary now for growth in share price. The major caveat being, as Seth points out, that we’ve all got to eat, and it is counterproductive if salaries are so low as to cause stress and heartache at home.

  • http://www.facebook.com/rapoport1 Stephen Rapoport

    “If a founder has a decent shareholding and believes in what he or she is doing then they wouldn’t want to trade higher salary now for growth in share price.”

    Totally agree, and apply the same logic to early hires. Asking whether a candidate would prefer a higher salary with more options or vice versa is a telling way to assess how they’re thinking about the role/company.

  • http://twitter.com/lambdatwigg Andy Twigg

    The problem with explicitly trading #options for salary reduction is that it implicitly values the options, which HMRC can use to argue for a higher strike price. Normally you’d want as low a strike price as possible…

  • http://twitter.com/richardmuirhead Richard Muirhead

    Have you found HMRC using data such as this for its decisions? The fact is that of course the options are very hard to value and that options over ordinaries (as these would be) should be valued significantly lower than those over prefs. Additionally…this ‘low strike price’ approach seems to me to be much more common/possible in the UK than the US.

  • http://www.birthdayslam.com Jeff Robinson

    This subject is certainly making the rounds and a good one to be addressed. The first question that should be addressed is at what point does a startup in fact need a CEO? The vast majority of startups need only the Founder and his vision and a great product development guy/girl to take the idea to proof of concept stage. If and when the startup has attained this milestone and then has been successful in raising a round of financing then it may be time to bring aboard a CEO. As for the pay? Just like any business, what will he/she bring to the table in terms of quantifiable deliverables. Use good old common sense – something so clearly lacking in the current VC culture.

  • http://www.theequitykicker.com Nic Brisbourne

    Hi Jeff – to me the founder is the CEO until a new guy comes in, if that happens. Hopefully my post brings a bit of common sense to the debate, that is what I was trying for. Quantifying the value delivered to determine pay is tough, partly because it is hard to attribute success to one person rather than the idea/market, and partly because the results are very skewed – in a small percentage of cases $m of value is created, but in most cases not so much….

  • http://www.theequitykicker.com Nic Brisbourne

    I haven’t seen HMRC trying to infer option values from CEO salary-equity trade offs. I think they would be very hard pushed to make an argument stick.

    Sorry for the slow reply.

  • http://www.theequitykicker.com Nic Brisbourne

    totally

  • http://blog.urbanhorizon.com Andrew J Scott

    A company from it’s inception IMHO needs a CEO, even if compared to a Fortune 500 company the profile of what that person does is very different (in most small start-ups, read: everythign), because there has to be someone ultimately in charge and ultimately responsible.

    The question with an early stage start-up eventually arises whether the Founder is the right person to run the company as CEO. Given the disproportionate passion an energy which the average Founder gives to a start-up the answer I feel should usually be yes, certainly until the company is post Series A when perhaps a rapid growth curve or more traditional company issues begin to appear and when perhaps the Founder’s value to the business is best served as CxO, as appropriate.

  • Tom Allason

    In which case you would agree valuation & strike price with HMRC before you offer deal… its moot though since granting options would never be considered by HMRC to be an arms length transaction.