Start-Up Salaries Defy Logic

November 22, 1999
By: James E. Gaskin, Interactive-Week.com

Help wanted: executives for Internet start-up. Competitive compensation, but gamblers
Preferred over wage slaves.

What exactly is the "competitive compensation" dollar amount today? It varies, but ExcePay.com (www.topexecpay.com) recently released are port on Internet compensation after surveying 140 companies. "For most companies, cash is at a premium and spent carefully. This is especially true now that Internet companies are out of tile starting gates, and the investors are getting smarter," says Andrew Oelbaum president of ExecPay.com.

But Oelbaum quickly points out that total compensation varies widely, driven by companies' desire to "pay executives when they perform,” rather than before. Stock options, performance bonuses and separation packages can more than double salaries.

Paul Dorf, the managing director at Compensation Resources (www.compensationuesources.com), emphasizes, "this is a very dynamic world” A normal Internet start-up is a cash-poor company and "if you can't pay people with cash, you pay them in paper - future potential.”

The chief executive is the key member of the management team and "will bring one or more people with him" to a start-up, Dorf says. The second member may be an operations specialist, chief financial officer, creative director or marketing head. CEOs who founded the company always get much more than a CEO brought in from outside. Outsiders are often brought into a messy situation where new ideas or a turnaround are needed.

Job definitions for chief information officer, chief operations officer and chief technology officer are getting muddied as technically oriented Internet firms use computer operations to gain information, transform that information into product and distribute that product.

"Usually, the CTO is the overall infrastructure person, while the CIO makes sure what the CTO has done is linked up with the proper hardware and software to ensure performance "Oribaum says. "An interesting argument in many Internet start-ups today is deciding who is responsible for the firewall and other security.”

Site architects' and lead programmers' "salary ranges are huge" Oelbaum says. "You're looking for someone with superior ability, not just experience.”
Since many Internet start-ups are defining new business models, or attempting to do so, experience is less useful as an indicator. "Companies need to avoid being restricted by traditional salary guidelines, so they can offer big bucks to people they want to keep.”

That thinking appears all over the organizational chart for new companies, according to Dorf. “Everything is based on future potential. Some companies tell us they don't plan to make a profit for years, or ever. They want to get an IPO [initial public offering] to get a value placed on their stock and to bankroll operations.”

The carrot in every start-up is stock, of course, and carrots now come in bunches. "Five or 10 years ago, the total amount of stock allocated was about 10 percent," Dorf says. "Now, a start-up may have to spread 20 to 30percent of the stock around current management. The tendency in SiliconValley now is to give stock to everyone in the company. No one person gets huge amounts, but the amount of stock adds up. Everyone in the company is a gambler, working toward the jackpot rather than a weekly paycheck.

Oelbaum makes special mention of a new clause for executives called "Change of Control Protection,” The clause protects executives, especially CEOs, when the company is bought, sold or merged. Typically, the displaced CEO will receive one or two times their yearly salary, all performance bonuses and, most important, "their stock options will accelerate, allowing the executive to realize potentially huge stock profits.

"Groups doing start-ups are young and entrepreneurial," Dorf says. “They want quick success, rather than building a legacy. They want big bucks, and they chase projects with tremendous upside." Watchword for those doing the hiring? Attract winners "with a decent salary, and the rest is upside potential with stock.”