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OK, I'll be the grown-up in the room. Are you fucking kidding me? No, really. OK, maybe, just maybe, if you have a very small homogeneous team and all of you

OK, I'll be the grown-up in the room. Are you fucking kidding me? No, really. OK, maybe, just maybe, if you have a very small homogeneous team and all of you are hippies this could make sense. Outside of that scenario it has disaster written all over it. This is just being a lazy CEO and not wanting to make decisions. Part of your job as a CEO is to understand such things the ebbs and flows of the business and ensure that it can survive even potentially deadly (financially speaking) scenarios. Do people vote themselves a pay reduction during bad times? Good luck with that one. Do all employees understand and plan for future acquisitions, investments and expenditures? Of course not. Sometimes you have to horde cash to get ready to make an investment, launch an initiative or hire more people. It is my experience that few people in a typical organization truly understand the financial dynamics of a business. People tend to see a two million dollar sale as two million dollars and not as the risk it can represent and the timeline to making a profit. Sometimes only the CEO has a true mental image of reality. Here's an example out of my own life. True story. I closed a $2.5 million dollar sale. This is for a hardware product. We are to be paid in four $625K installments, with the fourth one being against delivery. Walked away from the meeting with a PO and a $625K check. Fantastic, right? No. I was actually very concerned. This was early 2009. The economy was in bad shape. Banks were not lending. Everyone was bleeding money in one way or another. Most people would see a $2.5M sale as a huge win. I saw it as a potential mine field. Of course I was happy to have won the business. The reality of a CEO is to have a larger mental map from which to operate. This larger mental map told me that, while this was a nice win any number of things could go wrong and hurt us. Here's a reality in the electronics manufacturing business: Lead times can be horrible. It isn't unusual to have to wait twelve to twenty weeks for components. In addition to that, a lot of orders are tagged with the "NCNR" acronym: Non-Cancellable, Non-Returnable. In other words: You can't back away from an order. What does this mean when you need to deliver $2.5 million in product in four months. Well, it means you have to write a huge pile of purchase orders as soon as possible. The profit margin on this sale, if everything went perfectly, was approximately 25%. There are two ways to see this. The immature/adolescent way to see it is: "Man, you are going to make $625K!". Reality means "We have to spend $1.875 million to get this done. The latter is where the minefield lives. Employees are not in tune with these realities. They want a reliable paycheck every week and they want security. And, yes, they want to make as much money as possible. None of this is meant to be pejorative, it's just a reality. So, what happened? Well, within a week of receiving that first $625K I find myself writing nearly $1.5 million dollars in purchase orders. I had to. If I did not pull the trigger right away we could not deliver on time. Most of the PO's were for NCNR items. The next twelve months would send me to the hospital at least once from the stress I had to endure. The bank that was financing this deal for my customer decided to pull back. Our second installment didn't arrive for several months. When it did, it bounced. In the meantime the warehouse was filling-up with components we had to pay for. I had to use a combination of all of my credit cards as well as the full available equity in my home to pay salaries, bills and keep the business afloat. I did not fire anyone. It was a nightmare of unthinkable proportions. The proverbial kiss of death. At least one person actually died as a result of this business transaction. No, not in my company. The CEO of an associated company had a massive stroke and heart attack. The stress was just too much for him to handle and he could not take a break to look after his health. Sad. The story is far more complex than the short version above and far more nuanced, don't try to dissect it because you don't have enough information. I am simply using a simplified version as an example of business reality. It's a contact sport and sometimes you get bloody. During this time most of my employees were not aware of the mess I was juggling. Why not? Are you kidding me? The easiest way to destroy a company is from within. People want sausage, they don't want to see it made. Most employees at a multidisciplinary business don't have enough information to understand what's going on. You'd have to spend a ridiculous amount of time educating everyone in order to ensure that they get it. That's an irresponsible misuse of time. Your testing technician needs to be in the shop testing boards, not looking over balance sheets. Same applies to your shipping clerks, receptionist, marketing manager and graphic designer. So, yeah, I am coming off a bit harsh on this one. And rightly so. I think this CEO isn't a CEO at all. He wants to be buddies with his presumably homogeneous team. This decision is bad on many fronts. It sets up a bad situation. You will have to veto or flat-out take this "right" away at some point and, when you do, it will be hell. The other item is this idea of the CEO choosing to get paid the same or less than everyone else. OK, well, five buddies start a business together, fine, that makes sense. In most other situations this makes no sense whatsoever. Most businesses outside the reality distortion field that is the SCV/Venture-Capital world are self-funded efforts with huge financial and time investments from the CEO/Owner. A lot of them require slaving away in your garage for years before you can scale. There is almost no way any employee can match the level of investment, effort or sacrifice this class of CEO put into the business before the first employee was hired. No way. CEO pay and employee pay have no correlation whatsoever. One is responsible for a very narrow domain. The other is responsible for everything, often at a personal level. Pay your employees fairly, treat them well, be generous about vacations, be considerate, help them if they run into tough times (sick kid, parent, financial problem, etc.), pay for conferences and training courses, take them out on morale building trips and, if finances allow, be generous with bonuses and your recognition of their contribution to the enterprise. You are running a business, not a hippie commune.

rdl 13y ago
I absolutely agree with you on the CEO pay issue -- the (founder) CEO should be paid somewhat less than the lowest "real" engineer (not an intern or trainee), at least until Series B or later. Generally on the order of $100k in SFBA, vs. $120-150k for IC engineers. At a seed/pre-A/A, maybe $40-60k vs. $80-100k. A non-founder CEO is probably a sign that you're fucked until B, anyway, but would require a much higher cash comp. Founders should have their upside primarily in equity. In a VC funded startup. In a self-funded small business, founders tend to be substantially below market for a year or two, then approximately market, and then start taking money (if they can) at market or above around year 3 or 4. The problem with non-VC-funded startups is it is much less likely for employees that the company will be sold, so their equity (if any) is less likely to be meaningful, so they demand much higher cash or bonus compensation (i.e. the normal in consultancies). This raises costs for the company, and makes certain kind of people non-hireable. Paying everyone the same is actually quite common at startups. Or, paying the same job roughly the same (i.e. paying all eng/design one thing, and maybe paying sales people on a totally different structure). I've seen companies up to 50 employees do this, with essentially $100k and $150k for two types of employee. There was some variation in equity, both by date of hire and responsibility. There are huge organizations (USG, military, union shops, etc.) which have standardized pay, too. It seems to work well for them. The basic principle is separating cash salary from other motivation. That works in some places, doesn't work in others. It would probably be a horrible idea to pay a sales team which had variable levels of work output the same fixed salary with no variable compensation.
- robomartin 13y ago
  There's nothing wrong with paying everyone under a specific job classification the same. Say, your shipping clerks. Nothing whatsoever wrong with that. What is insane is having them vote on it. That makes no sense. The only exception to this might be a very small group of reasonably well educated (in business as well as their craft) individuals. They could objectively look at the business and just as objectively make decisions. At that point you, effectively, have a quasi de-facto multi-CEO situation, which could be cool if the business is not going anywhere past that point. Impossible to scale.

rdl 13y ago

I absolutely agree with you on the CEO pay issue -- the (founder) CEO should be paid somewhat less than the lowest "real" engineer (not an intern or trainee), at least until Series B or later. Generally on the order of $100k in SFBA, vs. $120-150k for IC engineers. At a seed/pre-A/A, maybe $40-60k vs. $80-100k. A non-founder CEO is probably a sign that you're fucked until B, anyway, but would require a much higher cash comp. Founders should have their upside primarily in equity. In a VC funded startup. In a self-funded small business, founders tend to be substantially below market for a year or two, then approximately market, and then start taking money (if they can) at market or above around year 3 or 4. The problem with non-VC-funded startups is it is much less likely for employees that the company will be sold, so their equity (if any) is less likely to be meaningful, so they demand much higher cash or bonus compensation (i.e. the normal in consultancies). This raises costs for the company, and makes certain kind of people non-hireable. Paying everyone the same is actually quite common at startups. Or, paying the same job roughly the same (i.e. paying all eng/design one thing, and maybe paying sales people on a totally different structure). I've seen companies up to 50 employees do this, with essentially $100k and $150k for two types of employee. There was some variation in equity, both by date of hire and responsibility. There are huge organizations (USG, military, union shops, etc.) which have standardized pay, too. It seems to work well for them. The basic principle is separating cash salary from other motivation. That works in some places, doesn't work in others. It would probably be a horrible idea to pay a sales team which had variable levels of work output the same fixed salary with no variable compensation.

robomartin 13y ago
There's nothing wrong with paying everyone under a specific job classification the same. Say, your shipping clerks. Nothing whatsoever wrong with that. What is insane is having them vote on it. That makes no sense. The only exception to this might be a very small group of reasonably well educated (in business as well as their craft) individuals. They could objectively look at the business and just as objectively make decisions. At that point you, effectively, have a quasi de-facto multi-CEO situation, which could be cool if the business is not going anywhere past that point. Impossible to scale.