Peter Thiel: Startup CEO Salaries Shouldn’t Be Above $150,000

http://pandodaily.com/2012/04/19/peter-thiel-on-ceo-salaries-and-motivational-indicators/

by jnazario • 14 years ago

36 64 14 years ago

rollypolly• 14 years ago

You can put any sort of artificial limit on CEO salaries. The only thing you'll never be able to touch is their true source of wealth, which is stock.

viscanti3• 14 years ago

That's the whole point though. You want the CEO to be able to live comfortably, but you want her hungry to grow the company. Having the bulk of her assets in stock, which is worthless until the company is a success, aligns the interests of the CEO with the Investors. Startup CEOs are more savvy than ever about retaining equity. It should be clear that their path to wealth goes through building a successful company, not just waiting it out until they've used up their runway.

alphakappa• 14 years ago

If they have no money for the present, and the only possibility to make some money is to have an IPO or sale, then the CEO is not necessarily aligned to the long-term interest of the company.

lpolovets• 14 years ago

I don't understand the example of Reid Hoffman taking a $15k salary as CEO of LinkedIn. IIRC, Reid was pretty well off from from being a very early PayPal employee and board member. When you have $X million in the bank (X >> 1), do you even care if you make $15k or $100k or $250k per year?

larrys7• 14 years ago

I agree it's window dressing and almost meaningless to me. Steve Jobs taking a $1? So what? He has money already and is trading that for future upside. And actually for the thrill of making his vision a success. My guess is that for many people (and especially Jobs) he could be paid $4 million and that wouldn't change his commitment to Apple.

larrys7• 14 years ago

"...Thiel believes that a CEO should not be paying themselves more than $150,000, even after a Series A investment. Anything above that shows a lack of motivation to the company and to the future success of the company."

Anything above? Really?

This assumes a few things. First that the cost of living is the same for any CEO. A CEO at a startup in NYC or SV has considerably higher cost of living than a CEO located in many other places.

Second, what if the CEO of the startup is older, has 9 children and expenses?

Coming up with an absolute number like "$150k" or whatever doesn't take into account a particular persons circumstances and seems to be biased toward unmarried people or people without children with no other obligations.

philwelch8• 14 years ago

Most people with kids and mortgages get by on less than 150k. If you really can't make ends meet on 150k you've overextended yourself.

wtvanhest7• 14 years ago

Yes, but they have 9 to 5, low stress jobs. I want the CEO of a company I work for/invest in etc. to be focused on the business, not saving.

I want them to feel good about their personal expenses so they can focus on the business.

larrys7• 14 years ago

What if they have a few kids in college? Even a public college can cost, what, $35,000 these days if out of state? What if they want to do a startup but they already have kids in private college? Sorry kids, I want to do a startup please switch to the instate public college.

My point is simply that there are other circumstances and picking an absolute number seems to be biased toward younger people with no obligations.

earl• 14 years ago

Not in sf or nyc.

a low end (not dumpy, but definitely not high end with a doorman) 2 bed apartment is going to run you $650k in the decent bits of sf and more in nyc.

In sf, you end up paying approx $1100 per month per million dollars of value in property taxes. So $715 in taxes, $300 or so in insurance, a $2500 mortgage, and you can easily be spending $3500-$4k/mo (after taxes) on housing. Using the rough rule of thumb that your salary should be 40 times your monthly housing payment, that's $160K already.

It isn't hard if you're an adult, with a family, or housing obligations, or kids, etc. If you wish to restrict the universe of ceos to relatively recent college grads with no life obligations who are content to pay $1500 to share a crappy apartment, then maybe Thiel is being reasonable.

larrys7• 14 years ago

"Most people with kids and mortgages get by on less than 150k"

Phil. I will say this the nicest way I can. I'd like to know where you are getting your info from? By your resume you are 4 years out of college. I'm a bit older and have 2 children, one in college as well as obviously many friends with children in college. My wife has 200k in Medical school debt to pay off. 150k is a nice salary, no doubt. But to say "If you really can't make ends meet on 150k you've overextended yourself." doesn't take into account someone's total financial situation and what their other obligations are.

zobzu• 14 years ago

if you've 9 childrens you're simply irresponsible.

LOOK I NEED THE MONEY I MADE 2 MANY KIDS!

Seriously?

$150K is way more than most people get - and they've a life too. And they don't get the millions in stock either.

wtvanhest7• 14 years ago

I would rather have the CEO of a company worried about hyper growth than clipping coupons. $150k is probably enough for someone in their 20s with no kids, but there is no reason why they shouldn't make a little more if they have kids etc.

Even in expensive cities, NYC, SF, giving more than $150k is probably not necessarily.

vaksel2• 14 years ago

yeah

you'd think they'd want the CEO to be able to 100% focus on their startup

If for example the CEO's wife lost her job...$150K is suddenly not that much for a family. Do you really want your CEO to do consulting on the side to pay the bills instead of focusing on the startup?

larrys7• 14 years ago

To me this is simply an attempt by Thiel to try and limit CEO's to a) ramen hungry founders or b) founders who already have money to live on c) founders without family obligations that can dedicate themselves 100% to the startup. Using the fact that money spoils (not denying that it could be true for some people) is just a red herring. I know many people who could retire and still work 6 or 7 days a week for the challenge. Some people who win the "lottery" lottery quit their jobs. And some continue to work.

This reminds me of a story that a small business owner told me many years ago. He said in his business he preferred to have Puerto Ricans work in his warehouse. But he couldn't advertise and say "looking for Puerto Ricans" for bias reasons. So he told me that he simply put in the advertisement "must speak spanish" and that got him exactly what he was looking for.

philwelch8• 14 years ago

What if the CEO lost his job? (That's the typical outcome for funded startups--they fail, and everyone involved loses their jobs.) If you can't handle that, you need a more reliable career than "startup CEO".

qty899• 14 years ago

I highly, highly, highly doubt a CEO with 9 children who needs more than $150K in salary because s/he doesn't have any sufficient safety net will be taken seriously by any VC.

tzs2• 14 years ago

> Second, what if the CEO of the startup is older, has 9 children and expenses?

Does having 9 children make him a better CEO than someone with a more typical number of children? If not, then why is that relevant to what a company should pay him?

rbanffy• 14 years ago

I'd contend CEO salaries shouldn't be much above that. If you limit compensation, it may be hard to hire people like Leo Apotheker, Carly Fiorina, Stephen Elop or the RIM guys. OTOH, there are people who can do the job as well as, if not better, than them for a fraction of their cost to the companies they run.

mjwalshe2• 14 years ago

Actually the 1$ salary is a well known tax dodge - its a aggressive way of avoiding income tax - everyone will have there own take on what this says about them as an individual.

michaelochurch4• 14 years ago

It's not exactly a "tax dodge". It's a consequence of the fact that capital gains taxes are lower than the income tax. It's a problem with the game, not the players.

mjwalshe2• 14 years ago

Well as a small shareholder/investor id be realy realy Pissed off if the IRS clamps down on my valid lower CGT just because some billionare CEO is taking the piss to be blunt.

amorphid• 14 years ago

Making blanket statements about how much people should make is fairly pointless. If spending $X on a CEO is a clear value proposition for the whole company, X can = just about anything.

kposehn• 14 years ago

Ehhh, $150k is a rather broad generalization.

I'd say that a startup CEO shouldn't make more than mid/senior level engineers. This allows food to be put on the table and some decent quality of life, while not sucking cash away at the expense of growth.

At the same time, if you're capable of not taking a salary at all, I think it is wise.

1123581321• 14 years ago

The CEO's salary should be the amount that maximizes the startup's chances of succeeding.

For a young/single or independently wealthy founder that's as close to zero as possible.

For a founder with family (like me) that's the lowest amount that puts all concern about supporting his/her children out of mind, so the CEO can focus. That number can really range.

bdunn• 14 years ago

I never really understood this idea of positions (especially the owner/CEO) being pegged to an arbitrary salary figure.

If profits are good, reward yourself. Any smart business owner gets the long term rewards of reinvesting in the company and will likely do that where appropriate.

tlogan• 14 years ago

Can we also have rule that VC salaries should not be more than $150K? And they will be paid only from funds profits and there will be NO management fees for their funds?

tibbon• 14 years ago

Or that VC salaries are $1 or at most $15K? Because again, they should only be paid from profits.

angersock• 14 years ago

Let's not be silly here. If it weren't for VCs doing all the hard work, what would ever ship?

adora• 14 years ago

Hypothesis: this would lead to less innovation over time as VCs would start looking for less risky, more guaranteed wins.

emmapersky• 14 years ago

~95% of Americans individual income is less than $100K [1] and while there are sadly many people living in poverty, that the other end of the scale. $150k a year is more than enough for a multi-person single earner family, you just might have to forgo that penthouse with a Central Park view for something that, shock horror, is in the outer boroughs. You know, like most New Yorkers. (I'm sure there is a similar analogy for SF and East Bay, or something)

So, have some respect people. Stop acting like spoiled children. Oh wait.

[1] http://www.census.gov/hhes/www/cpstables/032011/perinc/new01... via Wikipedia

danw• 14 years ago

This. In your 20s and earning more than £20k? Well done. Now shut up and ship.

michaelochurch4• 14 years ago

The reason this makes me sick has nothing to do with the number. I think that number is more than reasonable for most cases.

No, the reason it makes me sick is that VCs and three-digit millionaires and billionaires really should stop copping this attitude. We get it, you guys don't need generous salaries, or salary at all.

jtchang• 14 years ago

Thiel is missing the point. The point is that you need to pay people enough so that money ceases to be a factor.

For certain people money is not a factor so it doesn't matter whether it pay them $1 or $1MM. To others $150k is just enough money to live very comfortably but not enough to do nothing.

Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".

waterlesscloud2• 14 years ago

Of course, this would have the handy side effect of exerting downward pressure on engineer salaries as well. Huh.

epicureanideal• 14 years ago

I think it makes more sense to say something flexible like, "startup CEOs should not make more than 2x their market salary". I say 2x because they might be working twice as many hours. I'm not saying they should get 2x, because that's an argument about whether they should be working harder for equity or for salary, but I think 2x market salary is a reasonable, hard to argue with cap.

spobo• 14 years ago

I'm blow away by the reactions here. It's as if everybody expects to make a lot of money while taking a lot of risks with other people's money. This isn't wall street ;o This is business and hard work.

You get paid when your business is successful and you are acquired. At least that's how VC's see it.

If you don't go to bed with VC's or external investors you can pay yourself whatever you want.

Peter Thiel: Startup CEO Salaries Shouldn’t Be Above $150,000

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