What is the competition doing? You can start with 5% off the bat and add a point year by year. Many employers match a portion of their employees’ contributions.) Of course, if companies generate taxable income before their executives exercise their options, lack of a deduction is a definite negative. Executives with excess cash could exercise all their options right away; executives with less cash, or who wanted to wait for signs of the company’s progress, could wait months or years to exercise. No shares actually trade hands; the company compensates its executives to reflect the appreciation of its stock. They receive the financial benefits of owning stock without the risk of buying shares. Thanks. Executive Compensation Plans in a Startup’s Growth Stage. Compensation at a startup company is largely made up of three components: salary, benefits, and equity. Since 2008, there has been a secular trend to increase cash compensation and decrease equity to startup management teams. That included all of the components of what we call Total Compensation: Base Salary; Annual Incentives: target % and actual; Total Cash Compensation (TCC) = Base Salary + … So unless you raise millions and millions of dollars right from launch, it’s difficult to justify a high startup CEO salary. Other approaches, like leaving deferred compensation liabilities unsecured, allow executives to declare the income later while the company takes a future deduction. There is simply no way that a company just developing a prototype or shipping product for less than a year or generating its first black ink after several money-losing years of building the business can match the current salaries and benefits offered by established competitors. Any compensation data out there is hard to come by. Attracting these executives is easier said than done. Venture capitalists or other outside investors will demand a healthy share of equity in return for a capital infusion. Is there any way to match the array of benefits—retirement plans, child-care assistance, savings programs—her current employer provides? Many executives value the option of deferring taxable income more than the security of immediate cash. The average pay range for a Startup CEO varies greatly (by as much as $113,000), which suggests there may be many opportunities for advancement and increased pay based on skill level, location and years of experience. The compensation of the founder-CEO should be benchmarked to the market after benchmarking the rest of the function heads to the market. The plan bolstered the company’s short-term cash flow by deferring salary payments (it also deferred taxable income for those executives). Companies can choose among various book-value plans, under which they offer to buy back shares issued to employees according to a pricing formula. You should resist these temptations. As your company heads toward maturity, so can your compensation and benefits programs. The five prospects had unreasonably high expectations about how much stock they should receive. Moreover, while they were equal in experience and ability and therefore worth equal salaries, each had different cash requirements to meet their obligations and maintain a reasonable life-style. Unlike standard deferral plans, where cash is paid out on some unalterable future date (thus triggering automatic tax liabilities), the option approach gives executives control over when and how they will be taxed on their deferred salary. After working with startups for over a decade, I have dealt with many founders who are presented with the tough decision of handing off the role of CEO to an outsider. It issued NSOs with an exercise price equal to fair market value (most NSOs are issued at a discount). Opinions expressed are those of the author. 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