VC in DC

Your Start Up CEO Salary Estimator

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Ok, it won't be terribly scientific or data driven or reliable beyond being a conversational starter, but, here is a method to determine what the CEO position could or should pay at a particular start up.  (Blog Note to my current CEO's -- this posting is for entertainment purposes only).

We'll assume that the company is in a major metropolitan area in the United States and that the job in question relates to a recruited CEO.  Founder CEO's would get plus or minus 20% of the numbers below.  (This could be another blog post entirely but the discrepancy relates to a Founder's large equity position as a basis for lower compensation or irreplaceable status for higher compensation).  

So here goes, base number is $100k if you've made at least twice that in a previous job.   If one hasn't made twice that prior,  taking a CEO job may not be the right next step.

Now, the adjustments, add $10k in annual salary for every million dollars in revenue above $3M if the company is not profitable.  If the company is profitable, add $20k in annual salary for every million in revenue about 3 million.   Bonus should be around 0 to 15% in an unprofitable company and 20 to 30% in a profitable company (especially if one was at the helm during a transition to profitable operations).   One might ask about caps on these amounts, though I would argue that somewhere between $15M to $20M in annualized revenue -- the company is no longer a start up.

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Comprehensive 2008 Start Up Salary Survey - CEO and Executives

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I will be blogging about the upcoming 2009 Compensation and Entrepreneurship Report when it becomes available in the near future. This comprehensive report covers salary, bonus, equity and other compensation data for a range of start up executive positions. Here is last year's and it is worth reviewing prior to the release of current data. 2008 CompStudy Report in Technology

Start-up CEO Salary

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Investing in new ventures is sometimes characterized as the triumph of hope over experience given the high failure rate of fledging ventures.  The recruitment of a capable, proven CEO or the desire to do so in lieu of an unproven, founder CEO is better characterized as the opposite -- the triumph of experience over hope -- at least in many investors minds. 

So whether it is an unproven CEO, first timer, founder, etc. or a proven, start up CEO, the question of salary is fraught with complexity beyond what are market conditions (a little more on market momentarily).  

That complexity arises from the nature of gap to be filled.  What does the company need from its CEO?  How much can it afford to pay?  How much can one reasonably pay the CEO when it isn't profitable?  How much does equity figure in the compensation equation?   Questions that are all pertinent and particular to the situation at hand.

The VentureOne organization tracks and reports on CEO salary data.

http://www.metrics2.com/blog/2006/10/17/ceo_compensation_at_venturebacked_startups_up_58.html

The linked article shows CEO salaries of IT start-ups averaging $275k.   Most local head hunters in the DC area might describe that as market rate for start-ups with greater than $5M in annual revenues.  For the true start-up without significant revenues, I would suspect the number would be much lower.

Another interesting perspective on this topic is shared by investor, Peter Thiel, who shared his perspective at this year's TechCrunch conference that lower CEO pay correlates positively with company prospects.

http://www.techcrunch.com/2008/09/08/peter-thiel-best-predictor-of-startup-success-is-low-ceo-pay/

His thesis holds water in my opinion as the CEO that is dependent upon equity appreciation can only "win" one way and that way is completely aligned with investors' interest.

Again, every situation is different.  But one should be fully aware that getting to the right answer for start-up CEO compensation is not clear cut.   

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