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.
- The CEO aligned with the investors
- The simple reason he offered was that the CEO salary caps everyone else’s salary.
- 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.