Salary at Venture-Backed Companies

http://perceptive.ly/post/48616809088/salary-at-venture-backed-companies

by ntomaino • 13 years ago

102 80 13 years ago

ntomaino10• 13 years ago

Would love to hear the HN community's views on this taboo topic!

rayiner3• 13 years ago

> If you offer too little compensation, you may not attract the talent that you need to be successful. But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders.

> Salary is a measure of how much value one is adding to a company, and that information should not be a secret.

> If companies are consistently paying management teams 30% away from these averages in either direction, there is likely a problem at the company.

This runs the gamut from superstition (paying people more may make them less 'hungry') to untrue as a matter of fact (salary is an equilibrium of supply and demand, not a measure of value added), to playing to the middle ground fallacy (you should pay upper management within this range dictated by an average).

ntomaino10• 13 years ago

Thanks for the feedback rayiner.

My statement that paying people excessively can make them less hungry is something that has been observed through experience. I'm not saying that this is always the case, just that it happens and is something to be aware of.

Sure, salary is a matter of supply and demand- which is why I'm advocating for more transparency so that all market participants can make decisions with more complete information of the market. But I'm saying that supply and demand SHOULD be dictated by value added.

I'm not necessarily saying that every company should pay within this range. Just that this is something to be aware of, and if there is significant deviation from these numbers, more thought should be put into the decision making process.

rayiner3• 13 years ago

I agree with your central point, by the way. Salary transparency is a great thing. But some things are cliche, and I think the 'hungry' thing is one of them. "We shouldn't pay too much so people stay hungry" is something you'll, e.g., never hear Wall Street folks say about their own companies.

johnbellone2• 13 years ago

Did you pay them less and offer more equity?

I am not sure why your employees would be less 'hungry' if you're paying them more unless they feel like they don't have ownership in the product. Or maybe they just didn't jive well with the team.

Either way they are staffing problems - hire the right people and pay them what they are worth.

nimblegorilla• 13 years ago

Do you advocate reducing your own income? If it is better for others to be hungry then surely it is also better for you to be hungry. And yet I doubt that you argue with your boss to be paid less.

silvertonia• 13 years ago

I'd be interested in seeing how you go about deciding that "lack of hunger due to overpayment" was the reason for underperformance.

tonystubblebine2• 13 years ago

If we're going to have this discussion and focus on the management team, then I think we need to say how much money the company has raised. My thinking about salary for myself and co-founder is definitely funding specific.

ameister142• 13 years ago

Why? If I got 50 million dollars in funding or 400k, I'd still probably pay myself only what I need to survive/present myself and pour as much into the business as possible, at least until profitability and even then my salary would remain low until profitability was maintained and began to increase rather than be an issue.

Then again, I don't have a family.

ttrreeww8• 13 years ago

That is a very bad strategy.... You should study or read up on startup stories.

It's risk management.

auctiontheory2• 13 years ago

That VP of Sales number looks low. The article does say "salary," so it may technically be correct, but I'm sure total cash comp (not including options) is higher.

jonathanjaeger• 13 years ago

Yeah, at many B2B product or marketing companies, I assume the sales folks are heavily compensated based on commission while the CEO and founders are getting more equity (but possibly lower pay than a lot of the sales people).

ntomaino10• 13 years ago

Definitely true for sales folks at B2B companies- total comp can sometimes eclipse CEO when adding commission. My piece is focused on salary, not commission, cash bonus, and equity. Surely, a more complete picture of total comp is more valuable, but the scope of the piece was just focused on salary.

klochner• 13 years ago

He referenced "growth phase" which presumably means after having raised a venture round in the tens of millions or higher.

Certainly no one should be paying themselves this much after a $2MM series A.

rsuttongee• 13 years ago

I really wonder what 'average' means in this context since the average venture backed startup is a total failure.

I imagine there's also a huge disparity between the salaries of executives at companies across the seed->A round->B round->...->IPO spectrum as well.

ntomaino10• 13 years ago

Yes, I am talking about growth stage, so these are companies with at least 3 rounds of financing that have in most cases raised $10+mm

ttrreeww8• 13 years ago

Just because the startup is a total failure doesn't mean you can't get paid handsomely for it.

Just ask.

freyr• 13 years ago

Nick, since you're advocating transparency, I'd be curious to know the salaries paid by venture capital companies, such as North Atlantic Capital. For instance, what does an associate, managing director, or marketing director make?

czbond• 13 years ago

I find it interesting that the lowest paid person is the CTO. (Director of Sales will make more because of bonuses).

jwillgoesfast• 13 years ago

I thought the same thing (with a gasp as a CTO myself :))

But I'm going to assume this article references companies where the Technology department is more of a cost center than primary operations.

For example a SaaS company that basically just has sales/marketing and technology/operations, the CTO is also acting as the COO, so I think you could attribute the COO salary to that of the CTO in a SaaS or high-tech startup.

ttrreeww8• 13 years ago

Developers/CTO tend not to ask for high salaries. Hence they get paid less.

(Then they broke and go insane from the perceived injustice, see that other article recently...)

michaelochurch2• 13 years ago

If you offer too little compensation, you may not attract the talent that you need to be successful.

It depends on their circumstances. There are smart people who'll work for low salaries if there are genuine reasons to do so, but not many of them. Most of us can't afford to work for free anymore.

But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders.

Ahem. :cough: BULLSHIT.

That said, most startup executives I've known were worth nothing near $175,000 base. Most of them could justify $175,000/year not to work anywhere in technology again. Then again, I've never worked for a good startup.

Alright... now, this is a fun topic. I worked for a startup with outright evil management where there were 5:1 salary disparities over the same job. One person was making $30,000 per year (in NYC) in a non-tech role, then busted his ass to move over to engineering and did so, but was told that the promotion to engineer "should be enough". People were being hired into the same role at 4-5 times his pay. He eventually negotiated more, but he was underpaid for years. That was the startup that inspired my most famous blog post.

The good news is that most startups pay market. Salary may be about 15% less than you'd get in another company, but equity (at valuation) fills the gap. The bad news is that most startups are awful places to work and you learn very little and so you tend to "job hop"; it may not even be your choice because "fail fast" is often used as an excuse for impulsive firing. After a while in that game, you have more jobs than years in your history and startups are the only market left for you.

Domenic_S• 13 years ago

Your points are tangentially related to a question I've floated around in my head for years: when is a startup not a startup?

There's the income/profit metric (if a company is paying its CEO $200k+ and has several $150k+ engineers, they're obviously selling a significant amount of something)

Or there's the acquisition metric (our goal is to be bought, and we haven't been bought, so we're a startup)

michaelochurch2• 13 years ago

You may have followed my advocacy for open allocation: http://michaelochurch.wordpress.com/2012/09/03/tech-companie...

When a tech startup runs well, it's constrained open allocation. People can't just go off and "do whatever" but if the work is important to the business, anyone gets to step up and do it. There's no fighting over "headcount" or jockeying for plum projects. There is the work that needs to be done and as long as (a) people work on things that are relevant to the business, (b) people take enough of an ownership mentality to do the difficult or unpleasant stuff that's comes along with the good, they remain in good standing.

Once you have closed allocation, you're definitely not a startup.

ttrreeww8• 13 years ago

Last late stage VC company (which turns out to be run by psychopaths...):

VP: 220k base (H-1B filing)

Director (of what I forgot): 180k base (H-1B filing)

Programming monkey:

15 year exp: 185k base

10 year: 150-160k base

3(?) year: 130k base (in demand specialty)

danielweber• 13 years ago

Geographic area matters a lot.

ttrreeww8• 13 years ago

SV ;)

bane• 13 years ago

where was this at?

johnrob2• 13 years ago

No solution was offered here. This generic advice could be applied to anything: "in order to solve XYZ, ask some of your peers and perhaps try some products whose stated purpose is to solve XYZ".

ntomaino10• 13 years ago

im not smart enough to come up with a solution, that's what the HN community is for. The purpose of the piece was to shine light on a problem (lack of transparency in salaries at VC backed companies)

johnrob2• 13 years ago

On that note, I'll throw out an idea - maybe the valuation of company stock is not accurate enough. If it were, the problem would be much easier:

big co salary = startup salary + #shares * (stock price - option strike price).

EDIT: diving one level deeper, perhaps a company needs two valuations: one for investors buying the stock (market driven), and an internal one that employees are likely to accept. The two numbers should be the same, but during bubbles there might need to be a gap between them.

orangethirty2• 13 years ago

All of the offers I get from VC backed startups are always ridiculous. They seem to believe that I have to take an economic cut just to help them make it. These days, I talk about compensation first, and then about the project itself. No need to waste a week talking and getting to know the team if they can't pay me a reasonable amount.

kevinskii• 13 years ago

After a couple of similar experiences, I too started to mention compensation up front. While it has saved a lot of time, I'm starting to have second thoughts about this approach. The problem is that you don't get a chance to sell yourself to demonstrate why a higher salary might be warranted.

orangethirty2• 13 years ago

I tested that, too. But I always ended up wasting too much time. I have a base salary of n. If their initial estimate is under that, then I move on. I only talk to those who can at least pay n. Otherwise, its a waste of time. I adopted this system after I wasted a couple of days interviewing with a technical advisor (this title is now a red flag for me).

ttrreeww8• 13 years ago

LinkedIn is part of your solution to that problem.

You want to start off as a very high level candidate.

apalmer• 13 years ago

But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders.

-may hold for upper level management, but VERY unlikely this holds for rank and file employees.

georgemcbay• 13 years ago

"But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders."

IMO (and while I can't speak to the management side of it), this displays a horrifying misunderstanding of the mindset of the technical people you want to hire and pay well.

As an experienced and driven programmer, you hire me and pay me well so that my only concern regarding work is how awesome I can make the product I am working on. My name is attached to that code and that product, I need it to be as good as I can make it within the other constraints you've placed upon me. You can only fuck this up by paying me too little (because then I start to wonder how I am valued and whether or not I am wasting my time with a company that doesn't value me enough), not by paying me too much.

Granted, not every programmer is like this, but the ones you want to hire are.

abstractbill• 13 years ago

Absolutely agreed, and I've been on both sides of the table. I even had another manager argue with me that we should push extra hard on offering the lowest possible compensation we could get away with, so that we could be sure of only hiring people who were "really desperate to work for our company". Sigh.

carterschonwald• 13 years ago

THIS.

worrying about money means less time working. Less time thinking about how to engineer things nicely / solve high value problems. If you want great work from good people, compensate them well so they can FOCUS on what you've hired them to do.

ttrreeww8• 13 years ago

Pay them above market so they don't need to worry about making more elsewhere.

photorized• 13 years ago

This.

Worrying about money means thinking about side jobs, etc.

praptak• 13 years ago

I have read about cats that if you need a mouser you should not worry about feeding it too much. Cats will catch mice even if well fed. Feeding it too little means it will start to scout for food far away from your place, thus catching mice elsewhere.

aquark• 13 years ago

Though once your cat is too well fed it might not be able to catch mice as effectively anymore

YZF2• 13 years ago

Domestic cats are somewhat unique in that they don't exhibit contra-freeloading. That is they prefer not to work to working. I guess they consider catching mice "play". :-)

johnbellone2• 13 years ago

Anyone that is working for a startup should be invested in getting the best value out of the shareholders. This is usually the case because they themselves own a stake in the company in some form or another.

You should be paying your staff what they're worth and not short sell them because you're worried about them feeling "fat and happy." That's simply ridiculous.

If they themselves are not a shareholder then they should be working towards something. Is that a raise? Maybe that is equity? Whatever the incentive you can't just hire people and expect that they're going to live at the office without adequate compensation.

rhizome• 13 years ago

I believe there is a dominant meme in business techniques that drives startup bosses to adopt a slavedriver's attitude. I mean, look at the words themselves: "happy" is used in a negative sense.

nineteenturtles• 13 years ago

The salaries he listed were for executives, not coders.

If you pay your CEO too much more than $260k, there might be a risk that he/she start worrying about keeping the job (and the high salary) more than growing the company.

nazka• 13 years ago

There is no really sense in your second sentence. The only way for a CEO to keep his job with VC partners, is to increase the income of his partners so he must increase the revenue of the company. It is the first goal of any CEO (even for non-profit company). If he don't, partners will kick him of his seat to put someone who cares about their investment and do his job.

zenbowman2• 13 years ago

Exactly, these kinds of essays only increase my contempt of the empty suits who consider this advice "good management".

kkwok• 13 years ago

Is salary transparency definitely a great thing for companies? I've been told that in law firms (where all non-partner position salaries are revealed) this causes a race to the bottom and is not good for employees.

rayiner3• 13 years ago

It doesn't really create a race to the bottom. What it does do is basically let the most profitable firms set the salary scale. When they raise salaries, everyone matches for fear of being seen as a cut below. Nobody cuts salaries because doing so is very conspicuous in a market where most firms pay the exact same salary. So I think in that sense, transparency has the effect of pulling up the median salary and is good for employees, though not necessarily employers. On the other hand, it takes pressure off the top firms. The most profitable firms don't raise salaries unless they really have to, because they know that if they do it'll move the whole market upward and any recruiting advantage will be short-lived. So in that sense it's probably a bit worse for people at the top who might make more otherwise.

I think using salaries as incentive systems is mostly hokum except for situations where performance can be very easily quantified (e.g. sales people). I think transparency combined with lockstep (pay is strictly by seniority) is a great model, at least for organizations where everyone is mostly doing the same kind of job.

troels• 13 years ago

Since this is about startups, where there is usually a sizeable chunk of equity to go with the salary, it would be useful to get that figure as well.

seanMeverett2• 13 years ago

I spent years as an executive compensation consultant both creating and analyzing salary surveys for the world's largest companies.

What it teaches you is that: 1. Never use averages, always use medians 2. Sample sizes are critical, and anything below 5 samples you just can't trust (ideally 30, as the Central Limit Theorem suggests) 3. Garbage in, garbage out: if you don't know the population of the sample, then you can't trust the output (i.e., how many employees, what's the revenue run rate, what's the user growth look like, what's the valuation and how many funding rounds, etc).

I love the spirit of this data, but based on the core principles outlined above, you can't hang your hat on this data.

In software engineering land, not knowing these three principles is like not knowing the principles of MVC.

ntomaino10• 13 years ago

great feedback, thanks. admittedly, my data alone does not do much. Just wanted to spark some discussion on the topic, and I thought I should eat my own dog food.

seanMeverett2• 13 years ago

Totally understand, apologies if my comment came across as harsh, just trying to make sure we look at compensation data correctly since some of those numbers look a bit high relative to what I would imagine the market 50th percentile being for newer startups.

ruswick• 13 years ago

"But if you offer too much compensation, management and employees may begin to feel fat and happy and lose the motivation to maximize long-term value for shareholders."

God forbid if your employees are happy.

In all seriousness, I don't even remotely understand this mindset. Why would paying your employees less than they deserve or less than is optimal encourage them to "stay hungry." If anything, this is going to deter them from working inordinately hard or may drive them from the company altogether. If a company pays well, the employees have more to lose and are likely have a greater appreciation for their employer.

I just can't fathom how they expect that, by paying less than they ought to or less than their employees deserve, the employees will be more inclined to work hard.

This speaks to a fundament misinterpretation of employee motivation and is incredibly disquieting.

zalew• 13 years ago

Everyone knows a janitor won't clean the floor properly if he doesn't feel motivated to maximize long-term value for shareholders.

ntomaino10• 13 years ago

Paying management less than they deserve would not encourage them to stay hungry. But paying them more than they deserve based on market dynamics could possibly cause them to lose motivation. This is definitely not a rule that occurs 100% of the time, but my point is its something to be aware of, and salaries need to be more transparent so better-educated salary decisions can be made (for all participants of the tech ecosystem).

consz• 13 years ago

Do you have any proof of that, other than your own anecdotal evidence?

chrisbennet• 13 years ago

Why the down votes folks? Counter his experiences with your own examples or theory, tell him you disagree with what he thinks he saw (even though you weren't there) but sheesh, its not like he said something worth down voting. (I'm going to feel silly if the down voted post was full of racial slurs and has been edited since the down votes to remove them.)

mhuffman• 13 years ago

I think the keyword "optimal" in your 4th sentence is what he meant.

There is an old saying that "You should pay employees enough so that they don't have to worry about making more money, but not enough so that they won't have to continue working."

*edit: One thing to keep in mind is that everyone is not out to do the best job they can, and it is difficult to determine this until after you have worked with them for a while.

YZF2• 13 years ago

Currently doing Coursera's Dan Ariely's behavioural economics course... A couple of thoughts:

- You want the relationship with your employees not to be based solely on money. If the only reason they work for you is the salary then you have a problem already.

- It has been shown experimentally that larger incentives can negatively impact performance. This is more important for bonuses but salary probably shows some similar behaviour. In general when you worry about the money and the stakes you become less effective.

- What people are paid relative to their peers is important. People feel better when they're paid better relative to their peers. The actual amount is less important. This supports the "pay fairly" approach.

EDIT: An interesting observation that has been made is that requiring public companies to publish their CEOs salaries has not caused those salaries to decline. If anything it caused them to keep going up. A similar effect should be expected in VC backed companies if they publish similar data as prospective CEOs would always want to be paid better than said data.

russell• 13 years ago

A couple of decades ago I read about a company in New Hampshire of Vermont that made skiing and hiking outerwear, definitely not hi-tech. They posted everyone's salaries on the wall, including management. If someone wanted a raise he crossed out his old salary and wrote in a new one. The president(?) said no-one abused the system because it was self-limiting it was all there for everyone to read.

I've never seen it anywhere else. It would take real guts to do it in Silicon Valley.

ntomaino10• 13 years ago

Very interesting russell. let me know if you can dig up the write up on that!

Salary at Venture-Backed Companies

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