Compensation in the startup world.

My comment to Rick Segal’s post.

Peter Thiel at TechCrunch50 (timemark 18:30):

He said the #1 predictor of whether or not an investment was a success or failure was the CEO salary. He drew the line at $150K. More than that and the company was like to fail.

  1. The CEO aligned with the investors
  2. The simple reason he offered was that the CEO salary caps everyone else’s salary.
  3. The focus of the CEO is focused on building a great product and company

From my and my wife’s personal experience, every start-up that we worked at (except one*) where the CEO had a great comp package — the company failed. Everyone was looking at scoring their next bonus — not making the company better. The other result was that because the compensation given to the big wigs there was less money available for the engineers to make things happen.

I look at the Detroit jokes (aka GooberMotors, Fnord, Christ!ler CEOs) flying in on their corporate jets to Washington, DC and I know that those companies are going bellyup.

Malusus might be the answer. UBS is looking at requiring that bonuses be returned when the results are bad the next years.

* [The exception was a company that was small and very profitable. The two founders idea was that they didn’t hire anyone until they could guarantee that they could pay everyone’s salary for 6 months assuming that the company made no more money.]

However, investors need to be aware of what employees and founders need compensation-wise to keep their mind focused on the business.

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