01 December 2011

What Should Be the Salary of a Startup CEO?

Where companies like Ford Motor, General Electric, Coca-Cola, and several others paid their CEO in millions, the compensation for the startup CEOs' is still under discussion. With lower fund or sometimes fund raised from angel investors or venture capitalists, paying salary to the CEO becomes a matter of concern for every startup.
What Should Be the Salary of a Startup CEO?

A startup's series A funding should not be a large liquidity event or salary payday for the startup's CEO. Startups receive millions of dollars in funding and if all goes into paying salary of the CEO of the company, then various incentives get out of wallop. Several VC firms before investing want to know how much the CEO is paying himself. It is a common fact that the CEO's salary sets a cap for everyone else and a high level ensures burning a whole lot of money.

A high salary deviates the CEO from his ultimate goal of attaining business success; rather it sticks to just think around how he can increase his salary further by raising higher amount of funding. In a general concept, it is said that the higher the fund raised, the higher goes the salary of the CEO. Still the CEO should focus on the juicy exit that will be the only payday for any CEO that he should be worried about. Even a higher salary post first funding may imply not having true sense of urgency to implement and/or create shareholder wealth.

In few cases, the investors back-off funding the companies just because the CEOs' deny backing down their salary package as mentioned in the business plan. The startups basically focus on the term sheet discussion on liquidation preferences and anti-dilution. It is said that the lower the CEO salary, the more likely it is to succeed. However, a high salary is an implication of not building a great company or product but is to just collect paychecks.

Whatever the case may be, but one thing is clear that the companies with less rounds of funding have lower paid CEO and founders also make less money. When compared to non-founders, they have more equity in the company. The corporate world has come up with a solution to pay the CEO equity or stake in the company rather than cash which in turn will persuade them to work more harder.