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Some tech founders are getting huge pay packages

130 points by wallflower 5y ago

batty_alex 5y ago
So… Tech founders are now following the Facebook model: non-voting shares, enriching themselves, keeping most of the power Everyone is done pretending to be the “good founder,” that ship seems to have sailed
- iamstupidsimple 5y ago
  The less power controlled by the investor class, the better.
  - JumpCrisscross 5y ago
    > less power controlled by the investor class, the better Define "better." Because it apparently doesn't include reducing carbon emissions [1] or increasing returns [2]. Nor, for that matter, creating and supporting the forum you're on. [1] https://www.msn.com/en-US/news/topstocks/chevron-plans-big-low-carbon-investment-boost-as-engine-no-1-activists-loom/ar-AAOquXV https://www.msn.com/en-US/news/topstocks/chevron-plans-big-l... [2] https://corpgov.law.harvard.edu/2016/12/23/a-successful-case-of-activism-at-the-canadian-pacific-railway-lessons-in-corporate-governance/ https://corpgov.law.harvard.edu/2016/12/23/a-successful-case...
    - zd123 5y ago
      Activist investors are a small subset of all investors. Most investors are just out there to ride the business cycle to the top. Picking and choosing examples that do not generalize to most investors does not refute his point.
      - JumpCrisscross 5y ago
        > Activist investors are a small subset of all investors. Most investors are just out there to ride the business cycle to the top. There is research on dual-class firms. "Excess insider control is associated with decreased overall [corporate social responsibility] ratings," with the "community and employee dimensions...display[ing] the strongest negative association with excess insider control" in firms not in "the top decile or quartile of firms with respect to their cash and cash equivalents, operating cash flow, and free cash flow" [1]. Outside the limited case of technology company founders and family-owned firms, the evidence is strongly in favor of investor-controlled companies over the alternatives in virtually every dimension of "better." [1] https://www.sciencedirect.com/science/article/abs/pii/S0278425421000600 https://www.sciencedirect.com/science/article/abs/pii/S02784...}
        deleted 5y ago
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    - crmd 5y ago
      Probably better for employees. Canadian Pacific was a well governed, profitable company when Bill Ackerman raided the company and laid off 4500 unionized workers to goose the share price. I would be furious if a sociopathic activist investor did this to my company.
      - missedthecue 5y ago
        I don't think it was "well governed". It was bloated and inefficient. Look at the operating ratio over time between CP and it's direct competitor CN - the lower the better. https://corpgov.law.harvard.edu/wp-content/uploads/2016/12/Capture.png https://corpgov.law.harvard.edu/wp-content/uploads/2016/12/C... CP was languishing until Ackman fired their CEO in 2011 and put Hunter Harrison at the helm.
        silexia 5y ago
        So paying employees the minimum amount possible is efficient to you? Maybe it results in better short-term profits, but it destroys the company long-term.
        JumpCrisscross 5y ago
        > paying employees the minimum amount possible is efficient to you? Did pay go down? I don't think that's accurate. Paying a bunch of excess employees, yes, that's not efficient. That's practically textbook inefficient. Are we really on a forum run by a VC debating capitalism?
        crmd 5y ago
        There are plenty of capitalists who believe one of the several purposes of a company is to provide meaningful jobs in the communities in which they operate. When company owners cut the payroll to hoard profits, the remaining employees have to work harder for the same salary. It is the literal definition of the investor class siphoning wealth from the working class.
        5y ago
    - wpietri 5y ago
      It seems a bit rich to look at a climate crisis created by current capitalism's "privatize the gains, socialize the losses" approach, note one recent small change nominally driven by a small subset of investors, and then declare investors actually good. If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at, I'd expect it would be 99.9% the former. And I'll note that the link you give does not include actually "reducing carbon emissions". They're promising to invest more in research. How will they pay for that? Selling more oil. So even if they do the research and even if something comes of it, there's no particular reason to think that on net this choice will reduce total atmospheric carbon.
      - JumpCrisscross 5y ago
        > If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at, I'd expect it would be 99.9% the former Sorry, do non-market economies have a better track record when it comes to the environment? Eastern Europe says no [1]. Pollution intensity metrics relative to private property rights say no [2]. I cherry picked examples for narrative value. I didn't realize what I took to be an extremist claim--the less influence investors have over private companies the better--had so much purchase. [1] https://documents1.worldbank.org/curated/en/807441493305588896/pdf/Environmental-management-in-centrally-planned-non-market-economies-of-Eastern-Europe.pdf https://documents1.worldbank.org/curated/en/8074414933055888... [2] https://mpra.ub.uni-muenchen.de/48717/1/MPRA_paper_48717.pdf https://mpra.ub.uni-muenchen.de/48717/1/MPRA_paper_48717.pdf
        wpietri 5y ago
        What you're doing here is creating a false dichotomy. Eastern Europe is (or at least was) worse because the problem -- elites extracting wealth regardless of consequences to others -- was worse there. But it's not like self-interested elites capturing both economic and regulatory problems isn't a problem here. Indeed, in now might be worse here. The two choices available aren't eco-collapse in the 1980s American greed-is-good capitalism style or the 1980s Eastern Europe totalitarian style. There are more things, Horatio. But if you spend all your time cherry-picking citations to soothe your fundamentalist capitalism feelings, you're not going to see them.
    - marvin 5y ago
      Greenhouse gas emissions and climate change has nothing to do with ownership structure. Employee-owned companies make just as selfish decisions as investor-owned companies, and if they didn't, they'd lose to the competition if they tried to do the altruistic thing. These are separate questions; the solution to greenhouse gas emissions is globally-enforced taxes on emissions with the tax used to reverse the emissions.
  - lr4444lr 5y ago
    Honestly. Some people are just impossible to please short of every company becoming a completely worker owned cooperative.
    - wpietri 5y ago
      Sounds good to me. I've seen so much dysfunction generated by distorting companies to please executives and investors. I'd love to see what different approaches produce. I'd hope it would be better, but at least we could get some variety in pathology, and society wouldn't just take this generation's dominant paradigm as perfect and eternal. For those interested in the topic, I recommend reading "A Lapsed Anarchist's Approach to Building a Great Business". [1] Years ago a grad student went to the University of Michigan to study their large collection of anarchist literature. As a sideline, he started the now-legendary Zingerman's Deli. Over the years, it spun off a large collection of associated businesses, each run by some of the workers. Lots of interesting ideas, ones backed by real-world success. '1] https://www.zingermans.com/Product/zingermans-guide-to-good-leading-part-1-a-lapsed-anarchists-approach-to-buildi/P-ARI-12 https://www.zingermans.com/Product/zingermans-guide-to-good-...
      - JumpCrisscross 5y ago
        > I'd love to see what different approaches produce Worker-owned companies exist: they're called partnerships. Just add a line requiring all employees be shareholders so the partners can't hire staff. Lots of construction companies are organized like this. (Wholly employee-owned firms were more popular before WWII [1].) I don't see any evidence that they pursued profits less furiously than investor-owned competitors. ESOPs have been more successful [2]. Outside the domain of highly-skilled artisans, it turns out most employees--like most shareholders--don't want to do the work of being an investor. That results in the sort of clubbiness that will be familiar to anyone who has been involved in small-town politics. [1] https://heinonline.org/HOL/LandingPage?handle=hein.journals/month101&div=100&id=&page= https://heinonline.org/HOL/LandingPage?handle=hein.journals/... [2] https://hbr.org/1987/09/how-well-is-employee-ownership-working https://hbr.org/1987/09/how-well-is-employee-ownership-worki...
- deleted 5y ago
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- xwdv 5y ago
  Lying about the fact that you are making a startup to become rich is not the definition of a “good founder”.
- MomoXenosaga 5y ago
  The techno priests are just as bad as the old ones.
nishithfolly 5y ago
Here's the link without the pay wall: https://www.wsj.com/articles/silicon-valley-tech-startup-founder-pay-compensation-stock-packages-11634321296?mod=djemalertNEWS https://www.wsj.com/articles/silicon-valley-tech-startup-fou...
jacob_rezi 5y ago
At what point does the founder get shares of the new class?
random_savv 5y ago
The article seems to speak of stock awards and not salary, despite what the title says. "Today’s Tech Founders Don’t Just Own the Company. They’re Also Getting Huge Pay Packages." How are these stock awards different to owning the company? If anything, those stock awards sound less attractive as they should be options at a very high valuation? In effect, isn't this the same as later VCs reallocating the cap table in favour of the founders (and against earlier investor and employees)?
- aspaceman 5y ago
  > How are these stock awards different to owning the company? You're already expecting way too much intelligence from a journalist.
  - marstall 5y ago
    this is the wsj? they're going to get information about company stock and executive compensation right.
    - wsjtho55 5y ago
      That’s also a huge bias They want to peddle headlines of people doing well playing the speculative economics game Their article is simply to make it look attractive to keep playing, because of course their owners control a lot of the speculative economy But please keep going everyone; all the tech stocks I have been buying since Apple at 6-10/share in the late 90s aren’t going to prop themselves up Why work when you’ll do it for me!
- marstall 5y ago
  >Seven of the 10 most valuable compensation packages for U.S. public companies in 2020 were to CEOs of startups that listed publicly that year They're talking about companies that are, or are about to become, public - so a stock grant is closer to being cash.
- yarky 5y ago
  > If anything, those stock awards sound less attractive as they should be options at a very high valuation? An option to buy something at a certain price isn't the same as just getting the something. As mentioned in the article, ceo compensation consists usually of stock + options (et al.) tied to performance targets. > In effect, isn't this the same as later VCs reallocating the cap table in favour of the founders (and against earlier investor and employees)? Sort of, that's the point of the article. Apparently, new founders take on too much early financing.
supermatt 5y ago
Couldn't view link so didn't read, but: What does this mean from a taxation perspective? Could it be that "todays tech founders" want to "pay their dues"?
finite_jest 5y ago
Non-paywalled, ad-free archived version: https://archive.ph/iYCWl https://archive.ph/iYCWl
deleted 5y ago
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andy_ppp 5y ago
I mean what is a huge salary? There’s so much money flowing around at the top of society where it’s in the interest of tech investors to get the best founders and companies working for them I think investment is going to be larger which will inevitably trickle down to salaries. Weirdly it’s actually much better to not take a large salary and have the lowest possible burn rate to reduce the need for investment diluting your steak.
- wpietri 5y ago
  The theory that maximum money gets you "the best" is... under-evidenced. It's just as likely to get you the greediest, the most manipulative, or the most opportunistic. A good place to start is with Kohn's "Punished by Rewards", which covers a fair bit of research on how intrinsic motivation is undermined by extrinsic motivation. The people I know who are great at something do it because they truly love it. Whereas the most money-motivated people I meet focus a lot of their attention not on the actual topic, but the getting of money.
  - cjblomqvist 5y ago
    But all that research is not done on founders (haven't checked, but I've read research on this topic before) - so I'd argue it's basically difficult to know.
    - wpietri 5y ago
      If you want to claim founders are different, you have to make the claim and justify it. For example, you could claim that modern startups don't actually require people who are the best at anything except greed. Look at Uber or WeWork. Neither of those companies has ever turned a profit and maybe never will. But both of their founders walked away rich, rich, rich.
  - andy_ppp 5y ago
    I’m not convinced, essentially I’m saying businesses that have higher growth rates will get more investment and consequently pay higher salaries. For example the best developers already know their worth and I would suspect paying well to on average be correlated with better software. If you’re paying your developers $300k+ you’re likely to also remunerate yourself similarly well. I’d really be surprised if paying top rate for devs isn’t associated with more successful companies but sure, some will waste their investment in the wrong places and some will be trying to artificially enrich themselves, maybe even faking growth numbers which I’d be surprised if it doesn’t happen a lot. As for me if I’m doing a startup I’d prefer to be more mission driven and keep all of the equity for myself and the founding team or as much as possible.
zthrowaway 5y ago
So? Who cares. Good for them.
- motohagiography 5y ago
  Am not a pro investor, and this is sounding out an idea and not an opinion or advice. That said: Even without just being contrarian, it's worth considering whether bigger founder comp should be the norm. It may even be economically better to provide a founder with liquidity than redistributing cash back to investors where, if it isn't a significant multiple returned, the marginal value of the cash is net-negative. If as a VC, a founder returns cash to you, you've disappointed your own investors (LPs) who were buying exposure to the game/market the founder was selling access to. It's like giving them their chips back from a roulette table and telling them you didn't play them. They're going to find someone who they can be sure will play them next time. e.g. if a GP invests 2% of a portfolio in a company for 3 years, and the company gets wound up and returns that cash to the fund, what were the founder and their managers doing that they didn't invest the money to take risks for expected returns? By returning money, the founder has deprived investors of the magic juice that the founder brings to their market, and has just cost their investors time. Honest and even noble? Sure, but not what you paid for, because elsewhere in your portfolio, some coke addled sociopath who is currently a fugutive from Costa Rican justice is getting acquired for their PMF. It's largely chaotic, and so a pulled punch is value destroyed. A founder sells a ticket for a game with a chance at a 10x-30x return. Founders are in the lottery ticket kiosk business. When you buy a lottery ticket at a corner store, you don't care how the storekeeper or the lottery company spends it, you care that they are selling you a real and honest ticket to the game. Investors have cash that needs productive assets that return better than inflation. Founders create companies that are really a localized mini-market game for converting that cash into in productive assets that returns growth. Most of those companies fail, but it's like planting fruit trees that take several years to yield fruit and most don't make it that long. The seeds are only going to survive a season, and if you don't plant them, they're wasted. The quesiton should be, is higher founder comp necessarily inefficient? I'm saying it would be very hard to tell, because in a high risk venture portfolio with non-linear returns and dynamics, optimizing for frugal founder comp may be as likely to be destroying value in the portfolio as any other arbitrary constraint. If a founder sells investors control of the company, I'd propose the founder should take a significant cut of the investment as comp, because by taking board control, the investor is paying to limit the founders discretion - and by extension the founders potential performance, and therefore attenuating everyone's exposure to risk and upside. If you want to use your investment to attenuate the risk and upside of a company, then arguably, yes, the founder should extract a significant portion of that as comp. I'd be interested in the counter arguments to this.
cryptica 5y ago
What we have now is essentially feudalism except instead of titles (king, queen, prince, duke, earl, knight, bishop, ...) everyone is assigned some numbers (net worth, salary). The numbers of lower ranking people are decided by higher ranking people and can be overruled only by even higher ranking people. Instead of rank being determined based on proximity to the king, it is determined based on proximity to politicians and the money printers. All narratives about the self-made founder are complete BS. There is no meritocracy at all. That's why privilege is such a big topic nowadays except where the narrative is wrong is that it's not only about race. It's about proximity to the politicians and the money printers. Proximity to the centers of power is the only thing that counts. Successful entrepreneurs are not value creators, they are not contributors to society, they're just glorified courtesans whom, with the approval of their masters, are granted bigger numbers in exchange for loyalty and compliance. Value creation is a thing of the past. It does not get rewarded anymore. The entrepreneur of 50 years ago has nothing to do with the modern entrepreneur. They are completely different. The system we have today is feudalism but it markets itself as capitalism in order to onboard people. There is no free market. Central banks and their courtesans pump money into the system to decide all the prices from the top down. They can point the printer in any direction and that's where the entire global economy will go.
- 55555 5y ago
  I upvoted you for an interesting analogy which certainly does hold significant truth. But you're actually arguing that the percent of entrepreneurs who are rent-seeking has actually increased over the past 50 years? I really doubt this is true. I especially doubt it over the past few hundred years. At least on that scale, the world seems to be getting more meritocratic, not less. But heck, I don't really know. You certainly have a point. It's hard to not "make millions" when you're best friends with a top VC, kleptocrat, or even any politician. Read any book about the third world, or any allegations in the first world, and this becomes obvious. But there does seem to be a lot of meritocracy/business opportunities left for the rest of us. Have you ever started a business? Perhaps a healthier way to look at this is that, if you really wanted to, you could network your way up there. Because even taking your worldview as truth, you certainly can.
valparaiso 5y ago
Article probably wrote by Ben Shapiro’S Pencil Guy relative.
niros_valtos 5y ago
As everyone else mentioned here, this article refers to full packages. With that said, there is no need to be a founder to get a huge chunk of $$$ - the first employees tend to do very well. The path to success is finding these founders and company that will move the needle.
- arthur_sav 5y ago
  Well said. Not everyone is meant to be a founder and that's ok.
- moneywoes 5y ago
  Don’t you have to be very early to actually make more than a similar faang job
  - tibbetts 5y ago
    Depends on the scale of the outcome and whether you are growing in responsibility/impact as the business grows. If you want to make $1+M on a $50M outcome you better be early and hope management doesn’t raise too much money. If you want to make $1+M on a $5B outcome, you want to be a top 200 employee, which is certainly easier if you are early, but is possible if you come later and make a big contribution.
- achenet 5y ago
  There was actually a thread here on HN a little while ago about how early employees can actually end up with very little. One memorable comment was "I am that early engineer that got nothing" (or similar, may not be exact quote).
trjordan 5y ago
The interesting thing to me is that this indicates that investors largely believe founder-CEOs are the best CEOs for the company, long term. That’s new. I suspect that part of this is due to extended timelines to go public. Bezos never got another grant after IPO, but he owned 41% of the company at IPO. Today, it’s more typical for even successful founders to end up with 5%-15%. Taking dilution in the C/D/E rounds and going public at $3b is a different beast than going public after the B (with a huge ownership stake) and growing a public company from $60m to $3b. It makes sense that the successful CEOs who gave more away in dilution end up with end power to demand it back post-IPO.
giantg2 5y ago
Today’s tech founders who are lucky are getting huge pay packages. Plenty of small time founders out there who didn't start a unicorn.
- avs733 5y ago
  Exactly…the packages that get reported on don’t get reported on for being the average or the median. They get reported on for being noteworthy. The last good data I saw (which I believe was 2017?) had median founder ownership at large exit for VC funded startups as something like 11%
  - cracker_jacks 5y ago
    Any memory of where you found this data?
    - avs733 5y ago
      Blossom ventures… When I pull the link it looks like they updated their data to now use ipo specifically. Of 127 ipo’s: 15% median 20% average https://blossomstreetventures.com/2020/08/05/founder-ownership-at-exit/ https://blossomstreetventures.com/2020/08/05/founder-ownersh...
  - q1w2 5y ago
    ... and that assumes an exit. The vast majority of startups simply die.
    - avs733 5y ago
      Yeah but those don’t exist right! It would skew our distribution!
- deleted 5y ago
  [deleted]
lngnmn2 5y ago
Why not. My favourite example is Jane Street, of course, especially when they realised that the language is high-level and pragmatic. On the other side there is over-complicated and bullshit-infested IOHK projects which failed to deliver for years. Tech could matter a lot.
sjg007 5y ago
Karp gets $1B, wow. He is an interesting fellow for sure. https://m.youtube.com/watch?v=phmJhHhNOUs https://m.youtube.com/watch?v=phmJhHhNOUs
mindvirus 5y ago
Is there good data on founder comp at different levels of funding? Both salary and equity across roles, and how funding changes that. For example - I've heard founders getting bonuses or being able to sell stock in later rounds to stay focused on longer terms, and that CEOs typically get the same salary but more equity than CTOs (YC is unusual in that it encourages equal splits).
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hogFeast 5y ago
The point totally missed here. The logic for share awards initially was to align the interests of shareholders and managers. The problem here is: you have founders often with supervoting shares, they usually have a huge role in appointing the Board, and they are basically looting everything that isn't nailed down from minority holders. The big change was Musk's package. When that happened, all hell broke loose. It is a crazy situation because he already has a huge share in the upside of TSLA, but now he is taxing minority holders too. If anything, this is going to get worse because the rise of passive investing has left the market with essentially no corporate governance escape valves (and, although it is basically verboten to mention this now, changes in "board hiring policies" are having the same effect...if you know, you know...it is not possible to say this explicitly on the internet). But this is nothing to do with rewarding success or aligning incentives. This is just majority holders who control management and the Board looting non-controlling shareholders. In the cases where this isn't true, for example AAPL, the CEO pay is just wildly out of proportion to the amount of value generated...it is just insane (you are actually seeing tech-oriented PE funds make money from taking public companies private because they are able to gain control over stock-based comp...how crazy is that). Making comp wholly dependent on the share price (as in the Musk deal) is also completely inappropriate because, as a first-year finance student can explain, the stock price is not composed solely of company-specific risk. Just generally, I don't think executives realise this is going to come back to bite them. I am an arch-capitalist but this isn't capitalism, it is feudalism. The economic system in the US is rigged totally. The level of inequality and unfairness that exists in US society has never been sustained by any society. Executives are creating the machine that will end them.
- skinnymuch 5y ago
  The Musk package doesnt seem that bad. Did any one think the metrics would have actually been met so soon? The ones after the first one he got are even crazier. Yeah stock price as the main or sole focus for rewarding doesn’t make a whole lot of sense.
  - hogFeast 5y ago
    The Musk package is financial genocide. The guy owns a ton of shares already, his incentives were totally aligned...think about this way: he owns 17% of the company already so 17% of the package comes from Musk himself, the rest comes from everyone else...that should make clear exactly what is occurring. The economics are totally fucked, he is getting paid 10% of the market cap in a year...when he isn't hitting targets (and the guy is borrowing money like crazy...I think he has borrowed something like $60bn, I don't think anyone has soaked a company this badly...I have certainly never seen anything like this in a company that wasn't fraudulent). It is amazing that no-one has sued the Board (but, again, the problem today is that these investors don't really exist anymore, the largest active investor in TSLA has a 1.5% stake). This is the kind of thing that people will write about in 20 years and be like..."wow, that actually happened, no-one did anything".
varelse 5y ago
The best part is if they hired the right tax accountant and played their cards right most of this will be tax-free income. And that's the way our bought and paid for government wants it, so it will stay that way. It's not about political affiliation, it's purely about the money that pays for the candidates running for office. Edit: what truly warms the Schadenfreude in my heart here is that this only applies to founders and investors. Rank and file employees are not invited to this particular party. So for the employees to defend this system has so many parallels everywhere else.
topkai22 5y ago
Do these pay packages have to get accounted for in the standard filing? These pay packages seem like massive liabilities that need to not just be listed in the text but be accounted for in the numbers.
lph 5y ago
This article misses the more interesting thing, which is tech founders getting huge pay packages for companies that haven't yet delivered anything or have no realistic path to profitability. They call out WeWork and Theranos, but fail to see how close many of these others are to those. Archer? We're never going to see air taxis in our lifetimes. Nikola is already a collapsing scam. Bird? They are never going to be able to charge what it actually costs for a scooter rental, just like all of failed bike shares. The measure for founder success is now "able to raise an obscene amount of capital", and not "able to build a sustainable business". Investors should run screaming from SPACs, but they don't, because the sheer inertia of a high valuation brings in the next wave of dumb money, allowing the early investors to cash out. It's a damned Pyramid scheme. We are truly living in the golden age of scams.
- q1w2 5y ago
  Sort of. The pay packages may be high in "value" but since they are all in multi-year vesting stock options, the founder still needs to make the company successful in order to cash any of that money out. It's not like they're throwing tons of cash on him/her.
- alisonkisk 5y ago
  As Silicon Valley said, the product is not the app, and not thr Box, it's the company.
- tmccrary55 5y ago
  Echoes of the dotcom bubble
Texaner 5y ago
What a headline.
jlizzle30 5y ago
Any rules of thumb for how much cash compensation a founder can expect to draw in the first ~5 years of a successful startup? The stock compensation numbers make is sound like these founders are rich but it isn't liquid and could go to zero. Do founders need to be independently wealthy before starting a company?

130 points by wallflower 5y ago

So… Tech founders are now following the Facebook model: non-voting shares, enriching themselves, keeping most of the power Everyone is done pretending to be the “good founder,” that ship seems to have sailed

iamstupidsimple 5y ago
The less power controlled by the investor class, the better.
- JumpCrisscross 5y ago
  > less power controlled by the investor class, the better Define "better." Because it apparently doesn't include reducing carbon emissions [1] or increasing returns [2]. Nor, for that matter, creating and supporting the forum you're on. [1] https://www.msn.com/en-US/news/topstocks/chevron-plans-big-low-carbon-investment-boost-as-engine-no-1-activists-loom/ar-AAOquXV https://www.msn.com/en-US/news/topstocks/chevron-plans-big-l... [2] https://corpgov.law.harvard.edu/2016/12/23/a-successful-case-of-activism-at-the-canadian-pacific-railway-lessons-in-corporate-governance/ https://corpgov.law.harvard.edu/2016/12/23/a-successful-case...
  - zd123 5y ago
    Activist investors are a small subset of all investors. Most investors are just out there to ride the business cycle to the top. Picking and choosing examples that do not generalize to most investors does not refute his point.
    - JumpCrisscross 5y ago
      > Activist investors are a small subset of all investors. Most investors are just out there to ride the business cycle to the top. There is research on dual-class firms. "Excess insider control is associated with decreased overall [corporate social responsibility] ratings," with the "community and employee dimensions...display[ing] the strongest negative association with excess insider control" in firms not in "the top decile or quartile of firms with respect to their cash and cash equivalents, operating cash flow, and free cash flow" [1]. Outside the limited case of technology company founders and family-owned firms, the evidence is strongly in favor of investor-controlled companies over the alternatives in virtually every dimension of "better." [1] https://www.sciencedirect.com/science/article/abs/pii/S0278425421000600 https://www.sciencedirect.com/science/article/abs/pii/S02784...}
      - deleted 5y ago
        [deleted]
  - crmd 5y ago
    Probably better for employees. Canadian Pacific was a well governed, profitable company when Bill Ackerman raided the company and laid off 4500 unionized workers to goose the share price. I would be furious if a sociopathic activist investor did this to my company.
    - missedthecue 5y ago
      I don't think it was "well governed". It was bloated and inefficient. Look at the operating ratio over time between CP and it's direct competitor CN - the lower the better. https://corpgov.law.harvard.edu/wp-content/uploads/2016/12/Capture.png https://corpgov.law.harvard.edu/wp-content/uploads/2016/12/C... CP was languishing until Ackman fired their CEO in 2011 and put Hunter Harrison at the helm.
      - silexia 5y ago
        So paying employees the minimum amount possible is efficient to you? Maybe it results in better short-term profits, but it destroys the company long-term.
        JumpCrisscross 5y ago
        > paying employees the minimum amount possible is efficient to you? Did pay go down? I don't think that's accurate. Paying a bunch of excess employees, yes, that's not efficient. That's practically textbook inefficient. Are we really on a forum run by a VC debating capitalism?
        crmd 5y ago
        There are plenty of capitalists who believe one of the several purposes of a company is to provide meaningful jobs in the communities in which they operate. When company owners cut the payroll to hoard profits, the remaining employees have to work harder for the same salary. It is the literal definition of the investor class siphoning wealth from the working class.
        5y ago
  - wpietri 5y ago
    It seems a bit rich to look at a climate crisis created by current capitalism's "privatize the gains, socialize the losses" approach, note one recent small change nominally driven by a small subset of investors, and then declare investors actually good. If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at, I'd expect it would be 99.9% the former. And I'll note that the link you give does not include actually "reducing carbon emissions". They're promising to invest more in research. How will they pay for that? Selling more oil. So even if they do the research and even if something comes of it, there's no particular reason to think that on net this choice will reduce total atmospheric carbon.
    - JumpCrisscross 5y ago
      > If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at, I'd expect it would be 99.9% the former Sorry, do non-market economies have a better track record when it comes to the environment? Eastern Europe says no [1]. Pollution intensity metrics relative to private property rights say no [2]. I cherry picked examples for narrative value. I didn't realize what I took to be an extremist claim--the less influence investors have over private companies the better--had so much purchase. [1] https://documents1.worldbank.org/curated/en/807441493305588896/pdf/Environmental-management-in-centrally-planned-non-market-economies-of-Eastern-Europe.pdf https://documents1.worldbank.org/curated/en/8074414933055888... [2] https://mpra.ub.uni-muenchen.de/48717/1/MPRA_paper_48717.pdf https://mpra.ub.uni-muenchen.de/48717/1/MPRA_paper_48717.pdf
      - wpietri 5y ago
        What you're doing here is creating a false dichotomy. Eastern Europe is (or at least was) worse because the problem -- elites extracting wealth regardless of consequences to others -- was worse there. But it's not like self-interested elites capturing both economic and regulatory problems isn't a problem here. Indeed, in now might be worse here. The two choices available aren't eco-collapse in the 1980s American greed-is-good capitalism style or the 1980s Eastern Europe totalitarian style. There are more things, Horatio. But if you spend all your time cherry-picking citations to soothe your fundamentalist capitalism feelings, you're not going to see them.
  - marvin 5y ago
    Greenhouse gas emissions and climate change has nothing to do with ownership structure. Employee-owned companies make just as selfish decisions as investor-owned companies, and if they didn't, they'd lose to the competition if they tried to do the altruistic thing. These are separate questions; the solution to greenhouse gas emissions is globally-enforced taxes on emissions with the tax used to reverse the emissions.
- lr4444lr 5y ago
  Honestly. Some people are just impossible to please short of every company becoming a completely worker owned cooperative.
  - wpietri 5y ago
    Sounds good to me. I've seen so much dysfunction generated by distorting companies to please executives and investors. I'd love to see what different approaches produce. I'd hope it would be better, but at least we could get some variety in pathology, and society wouldn't just take this generation's dominant paradigm as perfect and eternal. For those interested in the topic, I recommend reading "A Lapsed Anarchist's Approach to Building a Great Business". [1] Years ago a grad student went to the University of Michigan to study their large collection of anarchist literature. As a sideline, he started the now-legendary Zingerman's Deli. Over the years, it spun off a large collection of associated businesses, each run by some of the workers. Lots of interesting ideas, ones backed by real-world success. '1] https://www.zingermans.com/Product/zingermans-guide-to-good-leading-part-1-a-lapsed-anarchists-approach-to-buildi/P-ARI-12 https://www.zingermans.com/Product/zingermans-guide-to-good-...
    - JumpCrisscross 5y ago
      > I'd love to see what different approaches produce Worker-owned companies exist: they're called partnerships. Just add a line requiring all employees be shareholders so the partners can't hire staff. Lots of construction companies are organized like this. (Wholly employee-owned firms were more popular before WWII [1].) I don't see any evidence that they pursued profits less furiously than investor-owned competitors. ESOPs have been more successful [2]. Outside the domain of highly-skilled artisans, it turns out most employees--like most shareholders--don't want to do the work of being an investor. That results in the sort of clubbiness that will be familiar to anyone who has been involved in small-town politics. [1] https://heinonline.org/HOL/LandingPage?handle=hein.journals/month101&div=100&id=&page= https://heinonline.org/HOL/LandingPage?handle=hein.journals/... [2] https://hbr.org/1987/09/how-well-is-employee-ownership-working https://hbr.org/1987/09/how-well-is-employee-ownership-worki...
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xwdv 5y ago
Lying about the fact that you are making a startup to become rich is not the definition of a “good founder”.
MomoXenosaga 5y ago
The techno priests are just as bad as the old ones.

nishithfolly 5y ago

Here's the link without the pay wall: https://www.wsj.com/articles/silicon-valley-tech-startup-founder-pay-compensation-stock-packages-11634321296?mod=djemalertNEWS https://www.wsj.com/articles/silicon-valley-tech-startup-fou...

jacob_rezi 5y ago

At what point does the founder get shares of the new class?

random_savv 5y ago

The article seems to speak of stock awards and not salary, despite what the title says. "Today’s Tech Founders Don’t Just Own the Company. They’re Also Getting Huge Pay Packages." How are these stock awards different to owning the company? If anything, those stock awards sound less attractive as they should be options at a very high valuation? In effect, isn't this the same as later VCs reallocating the cap table in favour of the founders (and against earlier investor and employees)?

aspaceman 5y ago
> How are these stock awards different to owning the company? You're already expecting way too much intelligence from a journalist.
- marstall 5y ago
  this is the wsj? they're going to get information about company stock and executive compensation right.
  - wsjtho55 5y ago
    That’s also a huge bias They want to peddle headlines of people doing well playing the speculative economics game Their article is simply to make it look attractive to keep playing, because of course their owners control a lot of the speculative economy But please keep going everyone; all the tech stocks I have been buying since Apple at 6-10/share in the late 90s aren’t going to prop themselves up Why work when you’ll do it for me!
marstall 5y ago
>Seven of the 10 most valuable compensation packages for U.S. public companies in 2020 were to CEOs of startups that listed publicly that year They're talking about companies that are, or are about to become, public - so a stock grant is closer to being cash.
yarky 5y ago
> If anything, those stock awards sound less attractive as they should be options at a very high valuation? An option to buy something at a certain price isn't the same as just getting the something. As mentioned in the article, ceo compensation consists usually of stock + options (et al.) tied to performance targets. > In effect, isn't this the same as later VCs reallocating the cap table in favour of the founders (and against earlier investor and employees)? Sort of, that's the point of the article. Apparently, new founders take on too much early financing.

supermatt 5y ago

Couldn't view link so didn't read, but: What does this mean from a taxation perspective? Could it be that "todays tech founders" want to "pay their dues"?

finite_jest 5y ago

Non-paywalled, ad-free archived version: https://archive.ph/iYCWl https://archive.ph/iYCWl

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andy_ppp 5y ago

I mean what is a huge salary? There’s so much money flowing around at the top of society where it’s in the interest of tech investors to get the best founders and companies working for them I think investment is going to be larger which will inevitably trickle down to salaries. Weirdly it’s actually much better to not take a large salary and have the lowest possible burn rate to reduce the need for investment diluting your steak.

wpietri 5y ago
The theory that maximum money gets you "the best" is... under-evidenced. It's just as likely to get you the greediest, the most manipulative, or the most opportunistic. A good place to start is with Kohn's "Punished by Rewards", which covers a fair bit of research on how intrinsic motivation is undermined by extrinsic motivation. The people I know who are great at something do it because they truly love it. Whereas the most money-motivated people I meet focus a lot of their attention not on the actual topic, but the getting of money.
- cjblomqvist 5y ago
  But all that research is not done on founders (haven't checked, but I've read research on this topic before) - so I'd argue it's basically difficult to know.
  - wpietri 5y ago
    If you want to claim founders are different, you have to make the claim and justify it. For example, you could claim that modern startups don't actually require people who are the best at anything except greed. Look at Uber or WeWork. Neither of those companies has ever turned a profit and maybe never will. But both of their founders walked away rich, rich, rich.
- andy_ppp 5y ago
  I’m not convinced, essentially I’m saying businesses that have higher growth rates will get more investment and consequently pay higher salaries. For example the best developers already know their worth and I would suspect paying well to on average be correlated with better software. If you’re paying your developers $300k+ you’re likely to also remunerate yourself similarly well. I’d really be surprised if paying top rate for devs isn’t associated with more successful companies but sure, some will waste their investment in the wrong places and some will be trying to artificially enrich themselves, maybe even faking growth numbers which I’d be surprised if it doesn’t happen a lot. As for me if I’m doing a startup I’d prefer to be more mission driven and keep all of the equity for myself and the founding team or as much as possible.

zthrowaway 5y ago

So? Who cares. Good for them.

motohagiography 5y ago
Am not a pro investor, and this is sounding out an idea and not an opinion or advice. That said: Even without just being contrarian, it's worth considering whether bigger founder comp should be the norm. It may even be economically better to provide a founder with liquidity than redistributing cash back to investors where, if it isn't a significant multiple returned, the marginal value of the cash is net-negative. If as a VC, a founder returns cash to you, you've disappointed your own investors (LPs) who were buying exposure to the game/market the founder was selling access to. It's like giving them their chips back from a roulette table and telling them you didn't play them. They're going to find someone who they can be sure will play them next time. e.g. if a GP invests 2% of a portfolio in a company for 3 years, and the company gets wound up and returns that cash to the fund, what were the founder and their managers doing that they didn't invest the money to take risks for expected returns? By returning money, the founder has deprived investors of the magic juice that the founder brings to their market, and has just cost their investors time. Honest and even noble? Sure, but not what you paid for, because elsewhere in your portfolio, some coke addled sociopath who is currently a fugutive from Costa Rican justice is getting acquired for their PMF. It's largely chaotic, and so a pulled punch is value destroyed. A founder sells a ticket for a game with a chance at a 10x-30x return. Founders are in the lottery ticket kiosk business. When you buy a lottery ticket at a corner store, you don't care how the storekeeper or the lottery company spends it, you care that they are selling you a real and honest ticket to the game. Investors have cash that needs productive assets that return better than inflation. Founders create companies that are really a localized mini-market game for converting that cash into in productive assets that returns growth. Most of those companies fail, but it's like planting fruit trees that take several years to yield fruit and most don't make it that long. The seeds are only going to survive a season, and if you don't plant them, they're wasted. The quesiton should be, is higher founder comp necessarily inefficient? I'm saying it would be very hard to tell, because in a high risk venture portfolio with non-linear returns and dynamics, optimizing for frugal founder comp may be as likely to be destroying value in the portfolio as any other arbitrary constraint. If a founder sells investors control of the company, I'd propose the founder should take a significant cut of the investment as comp, because by taking board control, the investor is paying to limit the founders discretion - and by extension the founders potential performance, and therefore attenuating everyone's exposure to risk and upside. If you want to use your investment to attenuate the risk and upside of a company, then arguably, yes, the founder should extract a significant portion of that as comp. I'd be interested in the counter arguments to this.

cryptica 5y ago

What we have now is essentially feudalism except instead of titles (king, queen, prince, duke, earl, knight, bishop, ...) everyone is assigned some numbers (net worth, salary). The numbers of lower ranking people are decided by higher ranking people and can be overruled only by even higher ranking people. Instead of rank being determined based on proximity to the king, it is determined based on proximity to politicians and the money printers. All narratives about the self-made founder are complete BS. There is no meritocracy at all. That's why privilege is such a big topic nowadays except where the narrative is wrong is that it's not only about race. It's about proximity to the politicians and the money printers. Proximity to the centers of power is the only thing that counts. Successful entrepreneurs are not value creators, they are not contributors to society, they're just glorified courtesans whom, with the approval of their masters, are granted bigger numbers in exchange for loyalty and compliance. Value creation is a thing of the past. It does not get rewarded anymore. The entrepreneur of 50 years ago has nothing to do with the modern entrepreneur. They are completely different. The system we have today is feudalism but it markets itself as capitalism in order to onboard people. There is no free market. Central banks and their courtesans pump money into the system to decide all the prices from the top down. They can point the printer in any direction and that's where the entire global economy will go.

55555 5y ago
I upvoted you for an interesting analogy which certainly does hold significant truth. But you're actually arguing that the percent of entrepreneurs who are rent-seeking has actually increased over the past 50 years? I really doubt this is true. I especially doubt it over the past few hundred years. At least on that scale, the world seems to be getting more meritocratic, not less. But heck, I don't really know. You certainly have a point. It's hard to not "make millions" when you're best friends with a top VC, kleptocrat, or even any politician. Read any book about the third world, or any allegations in the first world, and this becomes obvious. But there does seem to be a lot of meritocracy/business opportunities left for the rest of us. Have you ever started a business? Perhaps a healthier way to look at this is that, if you really wanted to, you could network your way up there. Because even taking your worldview as truth, you certainly can.

valparaiso 5y ago

Article probably wrote by Ben Shapiro’S Pencil Guy relative.

niros_valtos 5y ago

As everyone else mentioned here, this article refers to full packages. With that said, there is no need to be a founder to get a huge chunk of $$$ - the first employees tend to do very well. The path to success is finding these founders and company that will move the needle.

arthur_sav 5y ago
Well said. Not everyone is meant to be a founder and that's ok.
moneywoes 5y ago
Don’t you have to be very early to actually make more than a similar faang job
- tibbetts 5y ago
  Depends on the scale of the outcome and whether you are growing in responsibility/impact as the business grows. If you want to make $1+M on a $50M outcome you better be early and hope management doesn’t raise too much money. If you want to make $1+M on a $5B outcome, you want to be a top 200 employee, which is certainly easier if you are early, but is possible if you come later and make a big contribution.
achenet 5y ago
There was actually a thread here on HN a little while ago about how early employees can actually end up with very little. One memorable comment was "I am that early engineer that got nothing" (or similar, may not be exact quote).

trjordan 5y ago

The interesting thing to me is that this indicates that investors largely believe founder-CEOs are the best CEOs for the company, long term. That’s new. I suspect that part of this is due to extended timelines to go public. Bezos never got another grant after IPO, but he owned 41% of the company at IPO. Today, it’s more typical for even successful founders to end up with 5%-15%. Taking dilution in the C/D/E rounds and going public at $3b is a different beast than going public after the B (with a huge ownership stake) and growing a public company from $60m to $3b. It makes sense that the successful CEOs who gave more away in dilution end up with end power to demand it back post-IPO.

giantg2 5y ago

Today’s tech founders who are lucky are getting huge pay packages. Plenty of small time founders out there who didn't start a unicorn.

avs733 5y ago
Exactly…the packages that get reported on don’t get reported on for being the average or the median. They get reported on for being noteworthy. The last good data I saw (which I believe was 2017?) had median founder ownership at large exit for VC funded startups as something like 11%
- cracker_jacks 5y ago
  Any memory of where you found this data?
  - avs733 5y ago
    Blossom ventures… When I pull the link it looks like they updated their data to now use ipo specifically. Of 127 ipo’s: 15% median 20% average https://blossomstreetventures.com/2020/08/05/founder-ownership-at-exit/ https://blossomstreetventures.com/2020/08/05/founder-ownersh...
- q1w2 5y ago
  ... and that assumes an exit. The vast majority of startups simply die.
  - avs733 5y ago
    Yeah but those don’t exist right! It would skew our distribution!
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lngnmn2 5y ago

Why not. My favourite example is Jane Street, of course, especially when they realised that the language is high-level and pragmatic. On the other side there is over-complicated and bullshit-infested IOHK projects which failed to deliver for years. Tech could matter a lot.

sjg007 5y ago

Karp gets $1B, wow. He is an interesting fellow for sure. https://m.youtube.com/watch?v=phmJhHhNOUs https://m.youtube.com/watch?v=phmJhHhNOUs

mindvirus 5y ago

Is there good data on founder comp at different levels of funding? Both salary and equity across roles, and how funding changes that. For example - I've heard founders getting bonuses or being able to sell stock in later rounds to stay focused on longer terms, and that CEOs typically get the same salary but more equity than CTOs (YC is unusual in that it encourages equal splits).

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hogFeast 5y ago

The point totally missed here. The logic for share awards initially was to align the interests of shareholders and managers. The problem here is: you have founders often with supervoting shares, they usually have a huge role in appointing the Board, and they are basically looting everything that isn't nailed down from minority holders. The big change was Musk's package. When that happened, all hell broke loose. It is a crazy situation because he already has a huge share in the upside of TSLA, but now he is taxing minority holders too. If anything, this is going to get worse because the rise of passive investing has left the market with essentially no corporate governance escape valves (and, although it is basically verboten to mention this now, changes in "board hiring policies" are having the same effect...if you know, you know...it is not possible to say this explicitly on the internet). But this is nothing to do with rewarding success or aligning incentives. This is just majority holders who control management and the Board looting non-controlling shareholders. In the cases where this isn't true, for example AAPL, the CEO pay is just wildly out of proportion to the amount of value generated...it is just insane (you are actually seeing tech-oriented PE funds make money from taking public companies private because they are able to gain control over stock-based comp...how crazy is that). Making comp wholly dependent on the share price (as in the Musk deal) is also completely inappropriate because, as a first-year finance student can explain, the stock price is not composed solely of company-specific risk. Just generally, I don't think executives realise this is going to come back to bite them. I am an arch-capitalist but this isn't capitalism, it is feudalism. The economic system in the US is rigged totally. The level of inequality and unfairness that exists in US society has never been sustained by any society. Executives are creating the machine that will end them.

skinnymuch 5y ago
The Musk package doesnt seem that bad. Did any one think the metrics would have actually been met so soon? The ones after the first one he got are even crazier. Yeah stock price as the main or sole focus for rewarding doesn’t make a whole lot of sense.
- hogFeast 5y ago
  The Musk package is financial genocide. The guy owns a ton of shares already, his incentives were totally aligned...think about this way: he owns 17% of the company already so 17% of the package comes from Musk himself, the rest comes from everyone else...that should make clear exactly what is occurring. The economics are totally fucked, he is getting paid 10% of the market cap in a year...when he isn't hitting targets (and the guy is borrowing money like crazy...I think he has borrowed something like $60bn, I don't think anyone has soaked a company this badly...I have certainly never seen anything like this in a company that wasn't fraudulent). It is amazing that no-one has sued the Board (but, again, the problem today is that these investors don't really exist anymore, the largest active investor in TSLA has a 1.5% stake). This is the kind of thing that people will write about in 20 years and be like..."wow, that actually happened, no-one did anything".

varelse 5y ago

The best part is if they hired the right tax accountant and played their cards right most of this will be tax-free income. And that's the way our bought and paid for government wants it, so it will stay that way. It's not about political affiliation, it's purely about the money that pays for the candidates running for office. Edit: what truly warms the Schadenfreude in my heart here is that this only applies to founders and investors. Rank and file employees are not invited to this particular party. So for the employees to defend this system has so many parallels everywhere else.

topkai22 5y ago

Do these pay packages have to get accounted for in the standard filing? These pay packages seem like massive liabilities that need to not just be listed in the text but be accounted for in the numbers.

lph 5y ago

This article misses the more interesting thing, which is tech founders getting huge pay packages for companies that haven't yet delivered anything or have no realistic path to profitability. They call out WeWork and Theranos, but fail to see how close many of these others are to those. Archer? We're never going to see air taxis in our lifetimes. Nikola is already a collapsing scam. Bird? They are never going to be able to charge what it actually costs for a scooter rental, just like all of failed bike shares. The measure for founder success is now "able to raise an obscene amount of capital", and not "able to build a sustainable business". Investors should run screaming from SPACs, but they don't, because the sheer inertia of a high valuation brings in the next wave of dumb money, allowing the early investors to cash out. It's a damned Pyramid scheme. We are truly living in the golden age of scams.

q1w2 5y ago
Sort of. The pay packages may be high in "value" but since they are all in multi-year vesting stock options, the founder still needs to make the company successful in order to cash any of that money out. It's not like they're throwing tons of cash on him/her.
alisonkisk 5y ago
As Silicon Valley said, the product is not the app, and not thr Box, it's the company.
tmccrary55 5y ago
Echoes of the dotcom bubble

Texaner 5y ago

What a headline.

jlizzle30 5y ago

Any rules of thumb for how much cash compensation a founder can expect to draw in the first ~5 years of a successful startup? The stock compensation numbers make is sound like these founders are rich but it isn't liquid and could go to zero. Do founders need to be independently wealthy before starting a company?