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?
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.
"...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.
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.
Most parents, even parents with kids in college, get by on less than $150,000 a year. Kids can get scholarships and student loans. Actually, a lot of private colleges give need-based scholarships, so by taking your compensation as a lower salary today followed by lucrative equity compensation after you exit, you can usually end up minimizing the amount you pay out of pocket for your childrens' tuition.
"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.
If you can't make ends meet on 150k a year, you shouldn't be a startup CEO. It's that simple. If you need more security or up front money, there are plenty of other industries and established businesses you can work in. No one has to be a startup CEO.
A big part of being a startup CEO is the upside potential of the equity you get. You're sitting on potentially life changing amount of equity and your job is to make it actually worth something. If you need more than 150k a year, you've over extended yourself as a startup CEO and should probably do something else. Life is a series of tradeoffs. If you can't (or don't want to) do what it takes to be a startup CEO (and a big part of that is gambling on the future value of your equity), just go do something else.
The 150k figure is for funded startup CEO's. If you build your own profitable company and want to pay yourself more, go for it. There's plenty of routes to the end. If you can't cut it on 150k a year for whatever reason (your wife's medical school debt, kids, required lifestyle, etc), just do something else.
I don't know why you're making this personal, Larry. If it's such a struggle for you to be civil with me and discuss the facts rather than dragging our respective life histories into the conversation, you should find a better hobby than Hacker News.
Statistically, the median income for a family in Mountain View, California in 2007 was $105,079. (http://en.wikipedia.org/wiki/Mountain_View,_California#Demog...) (This is higher than San Francisco, and MTV also includes more families with children, which is why I've chosen it as a basis of comparison.) Compare that to a individual income of roughly half again as much. Unless you're asserting that more than 50% of Mountain View families are struggling to get by, you have to admit that someone who can't make ends meet on 150k has an unusually high level of financial commitment. Such a person is unlikely to be a startup CEO, especially since most startups fail and leave their employees suddenly unemployed.
I'd rather not get into your personal business, so let's speak more generally. Medical school is expensive and leaves one with a lot of debt, but unless you've made a horrible mistake, it also makes you a physician, who presumably can earn enough income to cover that debt. If not, medical school is a terrible investment. But in Mountain View, at least, the average physician apparently earns $131,000 a year (http://www.indeed.com/salary/q-Physician-l-Mountain-View,-CA...), which means our hypothetical CEO/doctor couple has a combined income of $281,000, about 2 and 2/3 times the median. I don't know anything about you or your friends, and I don't really care to because it's not a personal argument despite your constant desire to make it so, but if being unable to make ends meet on almost three times the median family income in your town isn't overextending yourself, what is?
I really can't understand this kind of lack of perspective. Ask your waitress, or barista, or the guy that changes your oil sometime if they have a "9 to 5, low stress job". Because they don't. And no one's paying them $150,000 a year--more than three times the median household income in the United States--to make them feel better about it.
I do not have a lack of perspective. I have been a server, a security guard, worked for minimum wage at a beagle shop etc. Now my job is much better than those jobs, but I still remember how "tough it was". It was tough in the sense that stress came from uncertainty in paychecks and in social status. But, that type of stress does not compare to being the CEO of even a small company.
If you make $100k in most cities that is pretty good, in SF or NY $100k a year means you have roommates. Do you want the CEO of a company that has the potential to make billions of dollars for investors to worry about who's turn it is to clean the kitchen?
Of course not, that is the most ridiculous thing I have ever read. It literally makes zero sense.
Median family income in San Francisco is just over $81k. Almost twice that for an individual is comfortable. Make it work. Believe it or not, you can get the job done without being coddled with luxury.
Why do you want a CEO of a company who has investors' money, employee's livelihoods and the possibility to improve the world living with roommates, cooking his/her own food to save money, and wasting time when that CEO could be 100% focused on the business?
I'm not advocating we pay him/her $500,000/year, but $150,000 is very fair.
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.
>> Most people with kids and mortgages get by on less than 150k.
> Not in sf or nyc.
It's still trivially true that most people in SF and NYC, including married adults with families, get by on way less than $150k. Even Upper-East-Side Manhattan, one of the wealthiest zip codes in the U.S., has average incomes "only" in the high 5 figures. Maybe there is a small section of Nob Hill where $150k incomes are normal, but even in most nice parts of SF that's not a typical family's income.
Part of the reason is that in areas where housing is the major cost, the 40x-your-housing-cost rule of thumb is too conservative, and would lead to a conclusion that almost nobody can actually live in the city, whereas clearly many people do. And anyway I believe the usual mortgage-company rules of thumb are 30% of your gross income on the mortgage payment itself, but up to 40% on mortgage+insurance+etc. So that'd lead to $120k in your hypothetical.
NYC is a bad example, the real estate costs really sky rocketed over the past 25 years or so...so it's very possible that someone could have gotten one of those buildings on a $40K/yr teacher's salary.
As a matter of fact I dated such a person (UES of NYC). Her salary was, IIRC, actually about $80's. She was divorced with one child. They had a 1 bedroom and shared the same bed. And she wouldn't have been able to afford that without family help.
"Even Upper-East-Side Manhattan, one of the wealthiest zip codes in the U.S., has average incomes "only" in the high 5 figures."
I'm not sure that you can look at simply average income without knowing whether the people are single, cohabitating and if they have children and how many. Also average income I would imagine doesn't take into account healthcare costs which can run thousands. One person may be covered, another not covered, another on medicare etc. Some may have child support to pay.
Saying that someone can get by on "less than 150k" is like saying that someone can build an ecommerce website for $X.
Even Upper-East-Side Manhattan, one of the wealthiest zip codes in the U.S., has average incomes "only" in the high 5 figures.
East of Lexington, the UES is upper-middle-income yuppies. Apartments are affordable but very small: like 400 SF for $2,000 per month. Not an option if you have kids.
Also, if UES is defined from 59th to 110th street, that includes areas in the north that are low-income and more like Harlem than UES. The change is quite stark.
It is possible to live with a baby in 1br apartment, a lot of people do it in Manhattan. The real problems start later, with preschools, kindergartens etc.
My question is: why? Are NYC public schools really that bad? (I have no idea, but I thought there were some good districts.) Or is the insanity just a product of it being hard to get them into top colleges coming from New York and not being prep? Because there's a solution, which is to have them move to Montana during their senior year.
What world do you come from where CEOs are these brittle, frail creatures who must be pampered and kept in protective isolation so that their companies don't collapse? You've made several comments throughout these comments referring to such a CEO. I wouldn't want to work for a guy who's this much of a prima donna. The person you're describing sounds like a wimp, to be perfectly honest with you.
Yeah, reading my comments does paint a picture, but it was unintended.
The main point I want to make is that keeping a CEO from making $150k, or $120k because they should be suffering for some unknown reason is being Penny wise, and Pound foolish.
I'm not advocating $200k or $300k in salary or more, I'm just saying that he should make enough where his personal income isn't the thing on his/her mind. Ideally the whole team should be making good enough money where they are not worried about these things. I also wouldn't advocate a system where the CEO was making twice what a CFO or CTO makes or some other crazy hierarchical system.
The world assumes there is a strong correlation with people's hunger and their success. In my experience I routinely see the opposite and I believe giving people more helps them perform better. Ultimately if someone is making an investment in a company they want that company to succeed and they should want that CEO to be focused on growing the business.
--This entire view point for me has changed over the past 5 years and maybe I'm right, maybe I'm wrong, but I don't see a good argument for paying a CEO $50,000 a year other than that someone thinks that is a lot of money for some reason.--
> 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?
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.
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.
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?
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.
Maybe we should take up a collection for the poor, impoverished startup CEO's who only earn $150,000 a year. That's only three times the median household (not individual) income. How do they get by!?
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".
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?
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.
~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.
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.
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.
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.
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.
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".
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.
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.
There's a big range between "no money for the present" and some salary at or below 150k a year. The point is that the CEO shouldn't be "getting rich" from their salary. They should be able to live comfortably, but not necessarily extravagantly (anything over 75k a year in SF or NYC should really suffice). If the CEO has aspirations of some day living extravagantly, she needs to have a successful exit.
It sounds like you're arguing that an "under paid" CEO might push for an exit quicker and at lower value than they might otherwise, if they had a higher salary. Almost every exit is successful, and not at all a guarantee. A CEO so short sighted that they take a much smaller early exit, probably is short sighted enough to fail at running a business and will likely end up with no exit at all.
As long as the CEO can pay for rent, food, family expenses and has at least 1k left over for whatever each month, that's more than enough. If a startup CEO is making a million a year, there's not as much incentive to get to a successful exit. Instead, there's more incentive to keep things going as long as possible to milk that salary. Reducing salary to a reasonable rate (I don't think anyone here is advocating ramen and a sleeping bag under the desk) and keeping incentives tied to a successful exit keeps the motivation where it needs to be.
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.
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.
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.
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.
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.
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.
