
Salary at Venture-Backed Companies - ntomaino
http://perceptive.ly/post/48616809088/salary-at-venture-backed-companies
======
georgemcbay
"But if you offer too much compensation, management and employees may begin to
feel fat and happy and lose the motivation to maximize long-term value for
shareholders."

IMO (and while I can't speak to the management side of it), this displays a
horrifying misunderstanding of the mindset of the technical people you want to
hire and pay well.

As an experienced and driven programmer, you hire me and pay me well so that
my only concern regarding work is how awesome I can make the product I am
working on. My name is attached to that code and that product, I _need_ it to
be as good as I can make it within the other constraints you've placed upon
me. You can only fuck this up by paying me too little (because then I start to
wonder how I am valued and whether or not I am wasting my time with a company
that doesn't value me enough), not by paying me too much.

Granted, not every programmer is like this, but the ones you want to hire are.

~~~
praptak
I have read about cats that if you need a mouser you should not worry about
feeding it too much. Cats will catch mice even if well fed. Feeding it too
little means it will start to scout for food far away from your place, thus
catching mice elsewhere.

~~~
aquark
Though once your cat is _too_ well fed it might not be able to catch mice as
effectively anymore

~~~
jmspring
Completely true. Our girl cat was a killing machine. Multiple gophers each
weekend -- always presented them as presents. But she loves to eat and takes
advantage of the fact the other cat doesn't eat as much. She's a pudgeball now
and hasn't caught much in awhile (some of that is due to age...).

~~~
Nick_C
> Our girl cat was a killing machine

Very true. The female is the real hunter and the one to get if you are after a
mouser. The male likes to lie in the sun, much like its owner.

------
rayiner
> If you offer too little compensation, you may not attract the talent that
> you need to be successful. But if you offer too much compensation,
> management and employees may begin to feel fat and happy and lose the
> motivation to maximize long-term value for shareholders.

> Salary is a measure of how much value one is adding to a company, and that
> information should not be a secret.

> If companies are consistently paying management teams 30% away from these
> averages in either direction, there is likely a problem at the company.

This runs the gamut from superstition (paying people more may make them less
'hungry') to untrue as a matter of fact (salary is an equilibrium of supply
and demand, not a measure of value added), to playing to the middle ground
fallacy (you should pay upper management within this range dictated by an
average).

~~~
ntomaino
Thanks for the feedback rayiner.

My statement that paying people excessively can make them less hungry is
something that has been observed through experience. I'm not saying that this
is always the case, just that it happens and is something to be aware of.

Sure, salary is a matter of supply and demand- which is why I'm advocating for
more transparency so that all market participants can make decisions with more
complete information of the market. But I'm saying that supply and demand
SHOULD be dictated by value added.

I'm not necessarily saying that every company should pay within this range.
Just that this is something to be aware of, and if there is significant
deviation from these numbers, more thought should be put into the decision
making process.

~~~
rayiner
I agree with your central point, by the way. Salary transparency is a great
thing. But some things are cliche, and I think the 'hungry' thing is one of
them. "We shouldn't pay too much so people stay hungry" is something you'll,
e.g., never hear Wall Street folks say about their own companies.

------
seanMeverett
I spent years as an executive compensation consultant both creating and
analyzing salary surveys for the world's largest companies.

What it teaches you is that: 1\. Never use averages, always use medians 2\.
Sample sizes are critical, and anything below 5 samples you just can't trust
(ideally 30, as the Central Limit Theorem suggests) 3\. Garbage in, garbage
out: if you don't know the population of the sample, then you can't trust the
output (i.e., how many employees, what's the revenue run rate, what's the user
growth look like, what's the valuation and how many funding rounds, etc).

I love the spirit of this data, but based on the core principles outlined
above, you can't hang your hat on this data.

In software engineering land, not knowing these three principles is like not
knowing the principles of MVC.

~~~
ntomaino
great feedback, thanks. admittedly, my data alone does not do much. Just
wanted to spark some discussion on the topic, and I thought I should eat my
own dog food.

~~~
seanMeverett
Totally understand, apologies if my comment came across as harsh, just trying
to make sure we look at compensation data correctly since some of those
numbers look a bit high relative to what I would imagine the market 50th
percentile being for newer startups.

------
ruswick
"But if you offer too much compensation, management and employees may begin to
feel fat and happy and lose the motivation to maximize long-term value for
shareholders."

God forbid if your employees are happy.

In all seriousness, I don't even remotely understand this mindset. Why would
paying your employees less than they deserve or less than is optimal encourage
them to "stay hungry." If anything, this is going to deter them from working
inordinately hard or may drive them from the company altogether. If a company
pays well, the employees have more to lose and are likely have a greater
appreciation for their employer.

I just can't fathom how they expect that, by paying less than they ought to or
less than their employees deserve, the employees will be _more_ inclined to
work hard.

This speaks to a fundament misinterpretation of employee motivation and is
incredibly disquieting.

~~~
ntomaino
Paying management less than they deserve would not encourage them to stay
hungry. But paying them _more_ than they deserve based on market dynamics
could possibly cause them to lose motivation. This is definitely not a rule
that occurs 100% of the time, but my point is its something to be aware of,
and salaries need to be more transparent so better-educated salary decisions
can be made (for all participants of the tech ecosystem).

~~~
consz
Do you have any proof of that, other than your own anecdotal evidence?

~~~
droithomme
I doubt he has anecdotal evidence or he'd have mentioned specific cases in his
article. It's a theory he's working on as part of his efforts to convince the
best and the brightest to work for his company, a high risk unstable start up,
for below market rates. There's one of these articles out from some guy at a
VC backed firm who is unable to afford competent people every few weeks. The
best idea these guys ever have is to write articles telling all the "coders"
that they are not as special as they think they are and would be lucky to work
for a fine firm such as theirs in return for vague promises of magic beans.

Meanwhile I have no problem at all hiring the best and the brightest. It's
super easy to find good people and hire them and how to do so is not a secret
at all.

------
freyr
Nick, since you're advocating transparency, I'd be curious to know the
salaries paid by venture capital companies, such as North Atlantic Capital.
For instance, what does an associate, managing director, or marketing director
make?

------
orangethirty
All of the offers I get from VC backed startups are always ridiculous. They
seem to believe that I have to take an economic cut just to help them _make
it_. These days, I talk about compensation first, and then about the project
itself. No need to waste a week talking and getting to know the team if they
can't pay me a reasonable amount.

~~~
kevinskii
After a couple of similar experiences, I too started to mention compensation
up front. While it has saved a lot of time, I'm starting to have second
thoughts about this approach. The problem is that you don't get a chance to
sell yourself to demonstrate why a higher salary might be warranted.

~~~
orangethirty
I tested that, too. But I always ended up wasting too much time. I have a base
salary of _n_. If their initial estimate is under that, then I move on. I only
talk to those who can at least pay _n_. Otherwise, its a waste of time. I
adopted this system after I wasted a couple of days interviewing with a
_technical advisor_ (this title is now a red flag for me).

------
YZF
Currently doing Coursera's Dan Ariely's behavioural economics course... A
couple of thoughts:

\- You want the relationship with your employees not to be based solely on
money. If the only reason they work for you is the salary then you have a
problem already.

\- It has been shown experimentally that larger incentives can negatively
impact performance. This is more important for bonuses but salary probably
shows some similar behaviour. In general when you worry about the money and
the stakes you become less effective.

\- What people are paid relative to their peers is important. People feel
better when they're paid better relative to their peers. The actual amount is
less important. This supports the "pay fairly" approach.

EDIT: An interesting observation that has been made is that requiring public
companies to publish their CEOs salaries has not caused those salaries to
decline. If anything it caused them to keep going up. A similar effect should
be expected in VC backed companies if they publish similar data as prospective
CEOs would always want to be paid better than said data.

------
russell
A couple of decades ago I read about a company in New Hampshire of Vermont
that made skiing and hiking outerwear, definitely not hi-tech. They posted
everyone's salaries on the wall, including management. If someone wanted a
raise he crossed out his old salary and wrote in a new one. The president(?)
said no-one abused the system because it was self-limiting it was all there
for everyone to read.

I've never seen it anywhere else. It would take real guts to do it in Silicon
Valley.

~~~
ntomaino
Very interesting russell. let me know if you can dig up the write up on that!

------
czbond
I find it interesting that the lowest paid person is the CTO. (Director of
Sales will make more because of bonuses).

~~~
jwillgoesfast
I thought the same thing (with a gasp as a CTO myself :))

But I'm going to assume this article references companies where the Technology
department is more of a cost center than primary operations.

For example a SaaS company that basically just has sales/marketing and
technology/operations, the CTO is also acting as the COO, so I think you could
attribute the COO salary to that of the CTO in a SaaS or high-tech startup.

~~~
ttrreeww
Developers/CTO tend not to ask for high salaries. Hence they get paid less.

(Then they broke and go insane from the perceived injustice, see that other
article recently...)

~~~
obviouslygreen
Thanks for that explanation. I was wondering where my future was heading.

------
klochner
He referenced "growth phase" which presumably means after having raised a
venture round in the tens of millions or higher.

Certainly no one should be paying themselves this much after a $2MM series A.

------
auctiontheory
That VP of Sales number looks low. The article does say "salary," so it may
technically be correct, but I'm sure total cash comp (not including options)
is higher.

~~~
jonathanjaeger
Yeah, at many B2B product or marketing companies, I assume the sales folks are
heavily compensated based on commission while the CEO and founders are getting
more equity (but possibly lower pay than a lot of the sales people).

~~~
ntomaino
Definitely true for sales folks at B2B companies- total comp can sometimes
eclipse CEO when adding commission. My piece is focused on salary, not
commission, cash bonus, and equity. Surely, a more complete picture of total
comp is more valuable, but the scope of the piece was just focused on salary.

~~~
auctiontheory
Then I think the article should explicitly point out that salary is only a
piece (and perhaps not the largest piece) of total cash comp. Otherwise it is
very misleading to the naive reader.

~~~
ntomaino
check the bottom, italicized portion of the piece. notes that the piece only
focuses on one portion of compensation.

------
rsuttongee
I really wonder what 'average' means in this context since the average venture
backed startup is a total failure.

I imagine there's also a huge disparity between the salaries of executives at
companies across the seed->A round->B round->...->IPO spectrum as well.

~~~
ntomaino
Yes, I am talking about growth stage, so these are companies with at least 3
rounds of financing that have in most cases raised $10+mm

------
johnrob
No solution was offered here. This generic advice could be applied to
anything: "in order to solve XYZ, ask some of your peers and perhaps try some
products whose stated purpose is to solve XYZ".

~~~
ntomaino
im not smart enough to come up with a solution, that's what the HN community
is for. The purpose of the piece was to shine light on a problem (lack of
transparency in salaries at VC backed companies)

~~~
johnrob
On that note, I'll throw out an idea - maybe the valuation of company stock is
not accurate enough. If it were, the problem would be much easier:

big co salary = startup salary + #shares * (stock price - option strike
price).

EDIT: diving one level deeper, perhaps a company needs two valuations: one for
investors buying the stock (market driven), and an internal one that employees
are likely to accept. The two numbers should be the same, but during bubbles
there might need to be a gap between them.

------
apalmer
But if you offer too much compensation, management and employees may begin to
feel fat and happy and lose the motivation to maximize long-term value for
shareholders.

-may hold for upper level management, but VERY unlikely this holds for rank and file employees.

------
tonystubblebine
If we're going to have this discussion and focus on the management team, then
I think we need to say how much money the company has raised. My thinking
about salary for myself and co-founder is definitely funding specific.

~~~
ameister14
Why? If I got 50 million dollars in funding or 400k, I'd still probably pay
myself only what I need to survive/present myself and pour as much into the
business as possible, at least until profitability and even then my salary
would remain low until profitability was maintained and began to increase
rather than be an issue.

Then again, I don't have a family.

~~~
ttrreeww
That is a very bad strategy.... You should study or read up on startup
stories.

It's risk management.

~~~
tonystubblebine
Exactly. There's a time element to this. It takes 7-11 years for a startup to
go public. Your life changes during that time and so does the relative impact
of your salary on runway.

~~~
ameister14
7-11 years for a startup to go public, but how long to reach profitability to
the point where an increase in salary won't affect that profitability? If it
takes 7-11 years for that, you're probably not in the right business.

It's not about the amount you raise, it's about what stage your company is in.
That's my real point there.

------
kkwok
Is salary transparency definitely a great thing for companies? I've been told
that in law firms (where all non-partner position salaries are revealed) this
causes a race to the bottom and is not good for employees.

~~~
rayiner
It doesn't really create a race to the bottom. What it does do is basically
let the most profitable firms set the salary scale. When they raise salaries,
everyone matches for fear of being seen as a cut below. Nobody cuts salaries
because doing so is very conspicuous in a market where most firms pay the
exact same salary. So I think in that sense, transparency has the effect of
pulling up the median salary and is good for employees, though not necessarily
employers. On the other hand, it takes pressure off the top firms. The most
profitable firms don't raise salaries unless they really have to, because they
know that if they do it'll move the whole market upward and any recruiting
advantage will be short-lived. So in that sense it's probably a bit worse for
people at the top who might make more otherwise.

I think using salaries as incentive systems is mostly hokum except for
situations where performance can be very easily quantified (e.g. sales
people). I think transparency combined with lockstep (pay is strictly by
seniority) is a great model, at least for organizations where everyone is
mostly doing the same kind of job.

------
troels
Since this is about startups, where there is usually a sizeable chunk of
equity to go with the salary, it would be useful to get that figure as well.

------
ntomaino
Would love to hear the HN community's views on this taboo topic!

------
michaelochurch
_If you offer too little compensation, you may not attract the talent that you
need to be successful._

It depends on their circumstances. There are smart people who'll work for low
salaries if there are genuine reasons to do so, but not many of them. Most of
us can't afford to work for free anymore.

 _But if you offer too much compensation, management and employees may begin
to feel fat and happy and lose the motivation to maximize long-term value for
shareholders._

Ahem. :cough: _BULLSHIT._

That said, most startup executives I've known were worth nothing _near_
$175,000 base. Most of them could justify $175,000/year _not_ to work anywhere
in technology again. Then again, I've never worked for a good startup.

Alright... now, this is a fun topic. I worked for a startup with outright evil
management where there were 5:1 salary disparities over the same job. One
person was making $30,000 per year (in NYC) in a non-tech role, then busted
his ass to move over to engineering and did so, but was told that the
promotion to engineer "should be enough". People were being hired into the
same role at 4-5 times his pay. He eventually negotiated more, but he was
underpaid for years. That was the startup that inspired my most famous blog
post.

The good news is that most startups pay market. Salary may be about 15% less
than you'd get in another company, but equity (at valuation) fills the gap.
The bad news is that most startups are awful places to work and you learn very
little and so you tend to "job hop"; it may not even be your choice because
"fail fast" is often used as an excuse for impulsive firing. After a while in
that game, you have more jobs than years in your history and startups _are_
the only market left for you.

~~~
Domenic_S
Your points are tangentially related to a question I've floated around in my
head for years: when is a startup not a startup?

There's the income/profit metric (if a company is paying its CEO $200k+ and
has several $150k+ engineers, they're obviously selling a significant amount
of _something_ )

Or there's the acquisition metric (our goal is to be bought, and we haven't
been bought, so we're a startup)

~~~
michaelochurch
You may have followed my advocacy for open allocation:
[http://michaelochurch.wordpress.com/2012/09/03/tech-
companie...](http://michaelochurch.wordpress.com/2012/09/03/tech-companies-
open-allocation-is-your-only-real-option/)

When a tech startup runs well, it's constrained open allocation. People can't
just go off and "do whatever" but if the work is important to the business,
anyone gets to step up and do it. There's no fighting over "headcount" or
jockeying for plum projects. There is the work that needs to be done and as
long as (a) people work on things that are relevant to the business, (b)
people take enough of an ownership mentality to do the difficult or unpleasant
stuff that's comes along with the good, they remain in good standing.

Once you have closed allocation, you're definitely _not_ a startup.

------
ttrreeww
Last late stage VC company (which turns out to be run by psychopaths...):

VP: 220k base (H-1B filing)

Director (of what I forgot): 180k base (H-1B filing)

Programming monkey:

15 year exp: 185k base

10 year: 150-160k base

3(?) year: 130k base (in demand specialty)

~~~
danielweber
Geographic area matters a lot.

~~~
ttrreeww
SV ;)

