7 ms·

Peter Thiel: Startup CEO Salaries Shouldn’t Be Above $150,000

36 points by jnazario 15y ago

rollypolly 15y ago
You can put any sort of artificial limit on CEO salaries. The only thing you'll never be able to touch is their true source of wealth, which is stock.
- viscanti 15y ago
  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.
  - alphakappa 15y ago
    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.
    - viscanti 15y ago
      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.
lpolovets 15y ago
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?
- larrys 15y ago
  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.
larrys 15y ago
"...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.
- philwelch 15y ago
  Most people with kids and mortgages get by on less than 150k. If you really can't make ends meet on 150k you've overextended yourself.
  - wtvanhest 15y ago
    Yes, but they have 9 to 5, low stress jobs. I want the CEO of a company I work for/invest in etc. to be focused on the business, not saving. I want them to feel good about their personal expenses so they can focus on the business.
    - philwelch 15y ago
      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.
      - wtvanhest 15y ago
        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 $100k a year means you have roommates. Do you want the CEO of a company that has the potential to make billions of dollars for investors to worry about who's turn it is to clean the kitchen? Of course not, that is the most ridiculous thing I have ever read. It literally makes zero sense.
rbanffy 15y ago
I'd contend CEO salaries shouldn't be much above that. If you limit compensation, it may be hard to hire people like Leo Apotheker, Carly Fiorina, Stephen Elop or the RIM guys. OTOH, there are people who can do the job as well as, if not better, than them for a fraction of their cost to the companies they run.
mjwalshe 15y ago
Actually the 1$ 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.
- michaelochurch 15y ago
  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.
  - mjwalshe 15y ago
    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.
amorphid 15y ago
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.
ineedafresca 15y ago
Any fund manager who complains about start-up salaries should live by example and not taking the standard 2% management fee. I could easily argue that is demotivating for them.
kposehn 15y ago
Ehhh, $150k is a rather broad generalization. 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.
1123581321 15y ago
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.
- deleted 15y ago
  [deleted]
bdunn 15y ago
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.
tlogan 15y ago
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?
- tibbon 15y ago
  Or that VC salaries are $1 or at most $15K? Because again, they should only be paid from profits.
- angersock 15y ago
  Let's not be silly here. If it weren't for VCs doing all the hard work, what would ever ship?
- adora 15y ago
  Hypothesis: this would lead to less innovation over time as VCs would start looking for less risky, more guaranteed wins.
emmapersky 15y ago
~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. [1] http://www.census.gov/hhes/www/cpstables/032011/perinc/new01_001.htm http://www.census.gov/hhes/www/cpstables/032011/perinc/new01... via Wikipedia
- danw 15y ago
  This. In your 20s and earning more than £20k? Well done. Now shut up and ship.
michaelochurch 15y ago
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.
jtchang 15y ago
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".
waterlesscloud 15y ago
Of course, this would have the handy side effect of exerting downward pressure on engineer salaries as well. Huh.
epicureanideal 15y ago
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.
spobo 15y ago
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.

36 points by jnazario 15y ago

You can put any sort of artificial limit on CEO salaries. The only thing you'll never be able to touch is their true source of wealth, which is stock.

viscanti 15y ago
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.
- alphakappa 15y ago
  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.
  - viscanti 15y ago
    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.

lpolovets 15y ago

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?

larrys 15y ago
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.

larrys 15y ago

"...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.

philwelch 15y ago
Most people with kids and mortgages get by on less than 150k. If you really can't make ends meet on 150k you've overextended yourself.
- wtvanhest 15y ago
  Yes, but they have 9 to 5, low stress jobs. I want the CEO of a company I work for/invest in etc. to be focused on the business, not saving. I want them to feel good about their personal expenses so they can focus on the business.
  - philwelch 15y ago
    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.
    - wtvanhest 15y ago
      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.

rbanffy 15y ago

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.

mjwalshe 15y ago

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.

michaelochurch 15y ago
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.
- mjwalshe 15y ago
  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.

amorphid 15y ago

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.

ineedafresca 15y ago

Any fund manager who complains about start-up salaries should live by example and not taking the standard 2% management fee. I could easily argue that is demotivating for them.

kposehn 15y ago

Ehhh, $150k is a rather broad generalization. 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.

1123581321 15y ago

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.

deleted 15y ago
[deleted]

bdunn 15y ago

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.

tlogan 15y ago

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?

tibbon 15y ago
Or that VC salaries are $1 or at most $15K? Because again, they should only be paid from profits.
angersock 15y ago
Let's not be silly here. If it weren't for VCs doing all the hard work, what would ever ship?
adora 15y ago
Hypothesis: this would lead to less innovation over time as VCs would start looking for less risky, more guaranteed wins.

emmapersky 15y ago

~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. [1] http://www.census.gov/hhes/www/cpstables/032011/perinc/new01_001.htm http://www.census.gov/hhes/www/cpstables/032011/perinc/new01... via Wikipedia

danw 15y ago
This. In your 20s and earning more than £20k? Well done. Now shut up and ship.

michaelochurch 15y ago

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.

jtchang 15y ago

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".

waterlesscloud 15y ago

Of course, this would have the handy side effect of exerting downward pressure on engineer salaries as well. Huh.

epicureanideal 15y ago

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.

spobo 15y ago

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.