How to Set Starting Salaries

Salary Considerations

  • When presented with job candidates for CEO, CTO and COO, how do you determine their salaries? If you try to argue them down, what arguments would you use? Would other, established companies value these same three people this highly for these same jobs? If not, then you may be overpaying them.

    If, however, your candidates have demonstrated the ability to perform at that level, then the salary is probably fine. (Though for cash-flow and bet-signaling reasons, I'd still take it as less cash plus more stock.) But if you haven't demonstrated that you can create $150K of value running something, it would be a very tough sell to persuade me that I, as your investor, should pay you that until you've shown that you're worth it.

  • Do those salaries lock you into unfavorable positions politically? If you three get high salaries, you're setting a range for any executive-level person you bring in. It will be hard to hire someone for much cheaper, and someone coming in with twice your experience, even if they're "just" a VP, may feel (and be correct) that they deserve a higher salary than you, based on experience. For the health of the business, you may have to hire them and pay them that--which sets the baseline high and really limits your flexibility. Not to mention, if you're spending $500K on the top three salaries, will you even have anything left over to afford a top-flight management team?
  • Whether salaries are the same or different depends on circumstances. Even if a survey says two positions get equal salaries, that isn't necessarily the best decision. From an investor perspective, salaries should be set for the optimal health of the company: Enough to ensure you guys won't starve or be too stressed out about money, but low enough to conserve cash and ensure that the founders share in the same risks the investors are taking.
  • Should you set salaries by job titles? The answer is no. regardless of what's printed in his business card, the CEO of a new start-up isn't doing the same job as the president/CEO of a $10 million company. Set salaries based on how much each person is contributing to the firm. But if differing salaries would cause resentment or feelings of unfairness among the founders, then set them all the same. You can't afford that kind of emotional baggage in your working relationship.

You should set salaries for the best working relationship and best business performance. In your shoes, I'd set three moderate, equal-base salaries at about $50K each. I'd want everyone to feel they were treated fairly, and no one to feel they were getting the same or a better deal than they'd get on the open employment market. If you want to reward people for the differences between their jobs, set up a bonus structure related to some combination of personal and group milestones. Keep the overall structure simple (salary plus bonus) and the bonus criteria simple enough so that the motivations and rewards are very clearly connected to each person's contribution.

As the company grows, raise your salaries last. Use the extra money on building infrastructure, hiring people who will accelerate your growth, developing marketing campaigns and forging deals that will give you access to the channels you need. Once the business is healthy and thriving, then you can raise your salaries. If the business is successful, you'll be rich enough so it won't matter. But if the business isn't successful, you'll be demonstrating to investors that you have the ethics and business sense to align your interests with those of the people who put their faith in you.

Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.

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Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.

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