Startup Compensation

Compensation in startups is one of the tougher topics to manage, in large part because there is very little information on the topic…until recently, that is.  The best source of compensation info for startups that I have come across is an annual survey conducted by J. Robert Scott, Ernst & Young and WilmerHale.  Professor Noam Wasserman at HBS does the analysis for this study and writes about it on his blog and in numerous papers on the topic.  While an abridged version of the study is available online for free, to get the full version you need to either be a participant in the survey or go through one of the sponsors.  This is a must-read study for VCs, founders and executives.

What is so great about this compensation study is that it focuses exclusively on venture backed startups (segmented into IT and healthcare sectors).  Furthermore, the study looks at the top 10 executive positions plus the board and breaks down compensation by base salary, bonus and equity and provides an analysis of how these vary by geography, industry segment, headcount, revenue, number of financing rounds and founder/non-founder status.

So for example, a non-founder VP of Engineering based in Boston at a software startup with 50 employees and <$5MM in revenue would expect to have a base salary between $150K and $160K, a cash bonus of $25-40K and equity in the 0.8% to 1.2% range.  In comparison, lists a VP of Engineering in Boston as having a median cash compensation of around $250K and is silent on equity.

One of the things that the comp study doesn’t address is what I call the First Time Discount/Second Time Premium.  What I have seen is that folks who have done it before command higher economics than first timers.  I wonder if what the study calls the “founder discount” is mostly attributable to the fact that the vast majority of the founders are first time CEOs?