As a startup founder with a hired CEO, who decides how much salary I can withdraw from the company?

Updated on : January 17, 2022 by Kade Merritt



As a startup founder with a hired CEO, who decides how much salary I can withdraw from the company?

You want to consider very carefully what your salary represents.

Salaries are for employees. 'Salary' implies compensation for regular contributions to the company (ie work). In what capacity (or capacities) are you regularly contributing to the company? I'm asking you because you hired a CEO. You've hired this person to run the business ... so what are you doing? What is your role?

My comments do not imply in any way that I should not receive financial compensation in any way. If you are in a position to hire a CEO, you have worked hard to achieve it.

You may believe that you are entitled to a salary ... a

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You want to consider very carefully what your salary represents.

Salaries are for employees. 'Salary' implies compensation for regular contributions to the company (ie work). In what capacity (or capacities) are you regularly contributing to the company? I'm asking you because you hired a CEO. You've hired this person to run the business ... so what are you doing? What is your role?

My comments do not imply in any way that I should not receive financial compensation in any way. If you are in a position to hire a CEO, you have worked hard to achieve it.

You may believe that you are entitled to a salary ... and I am sure there are many arguments to support this. That doesn't mean the rest of your leadership team agrees, and you could be hampering your company's growth if you insist on receiving a salary without contributing as an employee. Being paid a 'salary' as an employee would also inflate the company's expenses; This would reduce the profit margin, which could create negative perceptions about the success or value of the business.

The owners enjoy profit sharing. It may be more helpful for you to trust an ownership structure and establish compensation through it. For example, you can create a 'payment' every year (or even every fiscal quarter) based on the company's profits. This could be paid to the business owners based on the percentage of ownership. A structure like this is also very familiar to leadership teams and would not create some of the same frustrations as a salary.

The shares control the ownership interest in the company as a whole. This means maximum control when adding or removing employees, including the CEO.

A salary is a salary and therefore it is a company cost that is given to compensate employees for their work. This can be controlled by the CEO.

So if you, as the owner, are also paid a salary, the implication is that despite ownership, you also work for the company in some capacity, perhaps below the CEO or at a similar level.

The CEO can control salary, but cannot control ownership of his shares. He can dictate your salary, but it would be foolish to bother you; otherwise you can remove it from its post b

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The shares control the ownership interest in the company as a whole. This means maximum control when adding or removing employees, including the CEO.

A salary is a salary and therefore it is a company cost that is given to compensate employees for their work. This can be controlled by the CEO.

So if you, as the owner, are also paid a salary, the implication is that despite ownership, you also work for the company in some capacity, perhaps below the CEO or at a similar level.

The CEO can control salary, but cannot control ownership of his shares. He can dictate your salary, but it would be foolish to bother you; otherwise, you can remove him from his position for your voting / property rights.

However, yes, it may have the power to change your salary.

If there is a table, they determine the package. If it is a partner company, the partners jointly agree on an amount. If it is a proprietary company, then the owner (being the founder as well) determines the salary. However, the details will be made public if your company publishes its balance sheets and details of annual billing to shareholders, if any.

How you own the business. It is you, so how much salary do you think you can withdraw from the business? If the business is giving you a million a month, you can earn up to a million more salary that you have to pay yourself out of pocket.

But that shouldn't be more than 50% of the company's profits.

At first, decide if you want a salary. Maybe you want "owner's income" instead of a salary to start with. Discuss the options (options like choices, not "options") with the CEO and anyone else involved.

It depends a lot on the strength of the founders. I've been a founder and a substitute CEO, so I've seen both sides of how this can play out. The ideal goal for everyone, including investors, is whether the founder has the ability to run the company forever and remain a strong contributor. However, founders are often not great CEOs.

The challenge is that you have to think of the founders as people who simply had one or more good ideas that they took action on. This does not necessarily mean that they remain strong contributors or bring a lot of talent to the company. They may not have any ability to handle pe

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It depends a lot on the strength of the founders. I've been a founder and a substitute CEO, so I've seen both sides of how this can play out. The ideal goal for everyone, including investors, is whether the founder has the ability to run the company forever and remain a strong contributor. However, founders are often not great CEOs.

The challenge is that you have to think of the founders as people who simply had one or more good ideas that they took action on. This does not necessarily mean that they remain strong contributors or bring a lot of talent to the company. They may not have the ability to manage people or they may be completely tactical.

I have seen many companies where the founders were not very helpful after the initial stages because they simply will not reach the necessary role to keep the company moving forward. They become somewhat invisible luggage. I say “invisible” because all too often they stay in the company they founded and spend a lot of time working, but they do nothing or contribute as much to real progress.

Strong founders can be assigned other roles in the company and transition once the company reaches a point where it requires other talents. A single founder often becomes a CTO or active board member with a few service assignments keeping him busy. They often continue to perform technical functions of some kind and participate in the growth of the business.

I don't believe at all in zeroing out founders even in the worst of circumstances, but I do believe that they should hold stocks in line with their continued contribution. I love when founders can continue to play an important role in a fast-growing company. I hate to see them kicked out of their own company and some investors do it as a sport and those are the investors to avoid.

The mutual goal is to build a successful company and the founders should retain a decent portion of their stock, but not so much that it can't raise money or attract top talent. It should be sized appropriately for the circumstances.

Thanks for the A2A.

Too often, CEOs of startups are the first people to become "lean" for the good of the company. Why is this? Well, the reason is that the CEO's first and foremost concern is that the company grows and does not lose traction. The last concern a CEO should have is his salary. Obviously the CEO shouldn't have too low a salary to survive or worry about bills etc as that will steal focus and add additional stress to the CEO. That is why it is highly recommended that CEOs and co-founders have at least 12 months of salary (with which you can live alone) saved.

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Thanks for the A2A.

Too often, CEOs of startups are the first people to become "lean" for the good of the company. Why is this? Well, the reason is that the CEO's first and foremost concern is that the company grows and does not lose traction. The last concern a CEO should have is his salary. Obviously the CEO shouldn't have too low a salary to survive or worry about bills etc as that will steal focus and add additional stress to the CEO. That is why it is highly recommended that CEOs and co-founders have at least 12 months of salary (with which you can live alone) saved.

You shouldn't forget that startup CEOs hold some of the most important shares in the company. This means that as the company continues to grow and increase in valuation, your salary is likely to be the first to increase and the values ​​of those stocks will increase with the company. Therefore, even if they have little or no salary, they have a lot of shares!

There is a method that can be used, which is known as deferred compensation. This method basically consists of agreeing on a certain salary that makes sense for the position and industry the company is in and then deciding to take a small amount. Then, as the business receives more funds or increases the income, the person can start taking little by little more and more. Let me give you an example, imagine that the CEO sets his salary at £ 75,000 and at first decides to keep 20%. Therefore, the CEO's salary would be £ 15,000. Then, as the company grows or gets funding, the CEO can increase his stake to 30%, 40%, and so on.

At the end of the day, it's all too common for CEOs to not receive or forfeit salaries early in the startup's life. That is why it is important for them to have money saved so that they can survive. Hope this helped!

In theory, no, in practice, yes.

If you want, it's simply a question of whether you can make it happen. Your question suggests a startup or early stage company.

The Board of Directors should be the agency to stop this in its role of providing overnight checks and ensuring.

Theory: The CEO works for the owners of the corporation. The owners have the power due to the property and even if he is a majority shareholder, the oversight agency is the Board of Directors.

CEO compensation is not a management item, it is a board item.

Restriction: The board of a corporation must approve executive compensation. This is S

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In theory, no, in practice, yes.

If you want, it's simply a question of whether you can make it happen. Your question suggests a startup or early stage company.

The Board of Directors should be the agency to stop this in its role of providing overnight checks and ensuring.

Theory: The CEO works for the owners of the corporation. The owners have the power due to the property and even if he is a majority shareholder, the oversight agency is the Board of Directors.

CEO compensation is not a management item, it is a board item.

Restriction: The board of a corporation must approve executive compensation. This is standard on the articles of any American corporation. Usually it is one of the 3 default subcommittees which are "nominations", "compensation" and "audit".

The board of directors has a fiduciary duty to protect shareholders who grant them legal power through law, in the bylaws, bylaws and shareholders' agreements.

Reality: Early boards are weak and informal, a VC board may be more active, but still, a CEO can do whatever he wants within the qualification deadline.

The reason is because the CEO's power of influence and the power of control (the operations necessary to pay himself) are not constantly monitored, so regardless of the long-term consequences that I will not detail here.

If something can be done in a company, it is a question of power. Power comes from property, authority (control), and influence.

Power is a deceptive lover. It is transitory, often fluid, and always temporary.

I had four co-founders, the last of whom joined 1.5 years after we started the company. Do you know who got the most equity among the co-founders?

That's right, the one that joined 1.5 years after we started.

You want to make your equity decisions looking forward, not backward.

He had a pretty simple rule of thumb about who was and who wasn't a co-founder: If you join the company before receiving outside funding, then you're a co-founder.

And I decided, right or wrong, to treat the co-founders based on the value they would bring to the company, not their start date.

The reality is that if you can bring an excellent lat

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I had four co-founders, the last of whom joined 1.5 years after we started the company. Do you know who got the most equity among the co-founders?

That's right, the one that joined 1.5 years after we started.

You want to make your equity decisions looking forward, not backward.

He had a pretty simple rule of thumb about who was and who wasn't a co-founder: If you join the company before receiving outside funding, then you're a co-founder.

And I decided, right or wrong, to treat the co-founders based on the value they would bring to the company, not their start date.

The reality is that if you can bring in a great late co-founder, you increase the odds of success and therefore increase the value of everyone's equity.

Neither of the co-founders cared that the late co-founder "Randy" got the most equity. Randy was older than the others and brought more value than the others. He deserved the greatest fairness.

Be transparent and honest with your other co-founders.

If you're fair to everyone you work with, you probably won't have a problem giving a large chunk of capital to a deceased co-founder. Be transparent.

It is when people discover through the vine that they feel that you have been dishonest. And that's when the problems start.

For more, read:

How much equity do your employees deserve? - Brett J. FoxI was advising the two founders of a technology company. They had no funding and were looking to hire a vice president of engineering. They found a good candidate for the position and only wanted to give him a 1% equity stake for four years. I told them the candidate was not going to accept the… https: //www.brettjfox.com/how-much-equity-do-your-employees-deserve/

Founders should optimize long-term over short-term ... stock over salary.

If you believe in yourself, you should avoid optionality and put all your eggs in one basket. By having "skin in the game" and optimizing equity, founders align themselves with their investors and with the long-term interest of the company.

Founders should pay themselves enough to pay for the basics (room, board, etc.) and (ideally) no more. In SF Bay Area, the founder of a well-funded business should be willing to work for less than $ 150,000 a year. Of course, a start-up that hasn't raised a lot of cash should pay its foundation.

Keep reading

Founders should optimize long-term over short-term ... stock over salary.

If you believe in yourself, you should avoid optionality and put all your eggs in one basket. By having "skin in the game" and optimizing equity, founders align themselves with their investors and with the long-term interest of the company.

Founders should pay themselves enough to pay for the basics (room, board, etc.) and (ideally) no more. In SF Bay Area, the founder of a well-funded business should be willing to work for less than $ 150,000 a year. Of course, a startup that hasn't raised a lot of cash should pay its founders much less than that.

Founders who have been successful in the past should consider paying themselves somewhere close to zero and taking all the savings in stock instead. At SafeGraph, I personally pay myself $ 1 per month just so I can technically be on payroll.

Venture capitalists can better incentivize founders to be more aligned with the long-term prospects of the company. Like all employees, founders who are doing a good job should receive more compensation. Many venture capitalists don't like to replenish founders with stocks, so they usually give founders salary raises or cash bonuses. In general, this is a mistake: Venture capitalists should be willing to make significant equity grants to founders to get more shares as the company progresses.

Of course, at a certain point in the journey (especially if it is a very long one) the founders may need some extra cash to take care of the family, etc. In this case, venture capitalists should encourage these founders to sell a small slice of equity and take some compensation off the table.

To answer this question you need a -context-.

A CEO is not always the most important person in the company, that is, he or she does not always have the best salary or even the best conditions.

With this in mind, the CEO is the one who "should" push the company to take steps forward, energize the team, make people think, build a team, and so on. He is the one with the greatest responsibility within the company. If the company succeeds or fails, it is usually due to the CEO.

Investor perspective: (of course, depending on CEO, talent, networking, etc.) They like the CEO with normal salary, just like other C, b levels

Keep reading

To answer this question you need a -context-.

A CEO is not always the most important person in the company, that is, he or she does not always have the best salary or even the best conditions.

With this in mind, the CEO is the one who "should" push the company to take steps forward, energize the team, make people think, build a team, and so on. He is the one with the greatest responsibility within the company. If the company succeeds or fails, it is usually due to the CEO.

Investor perspective: (of course depending on the CEO, talent, networking, etc.) They like CEO with normal salary, like other C levels, but with bonus related to the milestones reached.

Guidelines:
Executive Director (CEO) Salary

o
Some CEOs of recently listed tech companies make millions. Others? Not that much

Going further:
As the CEO of an angel-funded SaaS startup (without VC) that generates $ 3 million in revenue a year and is profitable, is it acceptable to ask for a salary of $ 250,000?

Other Guides:


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