How much should my startup pay its executives?

Takeaway: Executive compensation varies from startup to startup, usually depending on the amount of cash the company has and how much the founders need the cash to fund their living expenses. Benchmarking tools like Carta Total Comp are a useful tool that can help give you a sense of what an appropriate compensation level would be based on your company’s stage and geographic location.

Determining how much to pay executives at a startup can be a complex and nuanced decision that requires careful consideration of a variety of factors. Here's a look at some factors to consider when determining executive compensation at a startup.

Industry Standards

Startups should research industry standards for executive compensation and ensure that their compensation packages are competitive and attractive to top talent. This can include benchmarking against similar companies in the same industry and geographic region. Benchmarking tools like Carta Total Comp (requires a subscription but your lawyer may have access) may be useful reference points.

Stage of the Company

The stage of the startup can also impact executive compensation. Early-stage startups may have less cash to offer in terms of salary and bonuses, but may offer more equity compensation to executives. Later-stage startups may have more cash available to offer competitive salaries and bonuses. Executive-level employees understand this and will expect more equity in earlier-stage companies and more cash in later-stage companies.

Company Performance

Executive compensation should also be tied to the performance of the company. This can include setting performance metrics and milestones for executives and tying cash compensation to achieving those goals.

Role and Responsibilities

The role and responsibilities of the executive should also be taken into account when determining compensation. For example, CEOs are often awarded higher compensation packages than COOs or CFOs.

Equity Compensation

Equity compensation, such as stock options and restricted stock awards, can also be a significant component of executive compensation at a startup. The amount of equity compensation awarded to an executive should be commensurate with their role and level of seniority within the company. An executive’s compensation should be viewed as a package of cash and equity compensation.

Conclusion

Executive compensation at a startup can be a delicate balancing act between attracting and retaining top talent while also managing cash burn and dilution. By carefully considering these factors and working with qualified legal and tax professionals, startups can develop compensation packages that are fair, competitive, and aligned with the long-term success of the company.