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When should a CEO start paying themselves?

From what I understand, startup CEOs pretty much expect not to pay themselves when starting a company. When you have no profit or much funding yet, and every extra penny is being invested back into the company, there really isn't much left over for the CEO to pay themselves. Some CEOs have even paid employees from their personal bank accounts before funding or profit from the company was able to do so on its own. We are in year 2, have just received a few M in funding and still I'm uncomfortable giving myself a reasonable salary that is up to market value. At what point is it reasonable for a CEO to start paying themselves?


23 Replies

Roger Wu
13
0
Roger Wu Entrepreneur
co-founder at cooperatize, native advertising platform
Everyone is in a different financial situation. If you can pay yourself $1 like Jobs, Bloomberg, Google guys, Zuck, then awesome! If you find yourself thinking about paying your rent instead of growing your business, maybe its time to take a salary.
Lane Campbell
15
0
Lane Campbell Advisor
Lifelong Entrepreneur
Market rate for a startup CEO doesn't exist. Take whatever you need to live a viable existence. The business won't succeed unless you do.
Peter Alberti
3
0
Peter Alberti Advisor
CEO at Pet Cause Media / Founder at PetChance.org
I see a few factors in play when making this decision:

1. If the founder can wait for a salary, then: Can the company afford to pay the founder without putting the company's financial situation at risk? If so, pay the founder! Everyone deserves to be rewarded for their efforts. If the company will be at risk, then hold off until it's stable. However...

2. As Roger said - if the founder is struggling financially on a personal level, the company should pay you as soon as possible, with less (but not zero) regard for financial risk to the company. You obviously don't want to put the company out of business by paying you. But perhaps you can pay yourself and grow more slowly or make other sacrifices that won't ultimately kill the company.

Having said all that, if you raised $M and IF the investors are OK with it, then you'd want to pay yourself if you need it. If you burn out or end up being financially disabled from supporting the company, the company will suffer.
Joe Albano, PhD
0
0
Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
As has already been stated, there are a number of factors:

  • Can you, or your household, afford to support yourself (itself) in a manner that you are willing to live? You need to think about personal runway in addition to the business's runway.

  • Are you looking for investors? I've heard that many investors balk at CEOs and other founders being compensated at "market" rates. Personally I'd be wary of any plan that did not include getting all major players to market level compensation. You don't want your founding CEO walking out the door for a better offer.

  • Ultimately the $1 CEO is a sign of financial weakness. It basically says that the individual is in a better financial position that the company. That can be a powerful play if you have the personal status to be the savior of a troubled company, but it doesn't seem like story one would willingly create for a startup. If you can't work your way to find finding for the level of management that you need, you don't have a sustainable business model.
Patty DeDominic
3
0
Patty DeDominic Advisor
Chief Catalyst, Managing Partner at DeDominic & Associates (Also Chief Catalyst for Maui Mastermind and Exec Coach)
Start now. You time as a volunteer needs to evolve to that of a real leader. Unless you are running a non profit for life, it's time to pay for value added and key roles. Include a budget and plan according to what you would have to pay someone else who would fulfill your functions. Investors are not inspired by unreal budgets. Free labor is not sustainable. Why would you think that it's good for your company to not pay any critical position once you have cash flow? Your budget becomes scaleable when your expenses and your income are properly planned. Patty DeDominic
John Balena
2
0
John Balena Entrepreneur
EVP Worldwide Sales & Services at Trifectix
I agree with the major thread in the discussion. You must be compensated for your role adjusted for the size of the company. If you have the ability not to be paid, get paid anyway to compensate you for your contribution and invest that salary in the next round of funding. That demonstrates your commitment to the business while putting your salary back to work in exchange for preferred stock.
Richard Bullwinkle
0
0
VP of Products & Marketing at Dictionary.com
One quick comment about Mr. Belena's post. While I completely agree with the sentiment that a founder should be compensated when the company can afford it and when the founder needs it, I caution against reinvesting your salary, only because I just learned of a close friend losing a key investor between rounds A & B because the investor didn't like hat the founder invested in Series B. Crazy, I know, but true. And this investor? You all know him by name.



J William Moore
1
0
J William Moore Entrepreneur
Publisher: EV World. Founder & Interim CEO of QUIKBYKE
Two observations: I read recently in the Sunday NY Times that Tony Hsieh only takes a $36K annual salary. Also I've read that Warren Buffett's salary is $100K a year. His security detail runs Berkshire four times that figure though. Of course, both have sizable vested interests in their respective enterprises. Still both are illustrative of what I consider socially responsible CEOs.
Jake Carlson
1
0
Jake Carlson Entrepreneur • Advisor
Software Development Manager at Oracle
I think it's largely a function of where you are financially. I wouldn't really put Warren Buffet or any other mega-rich individual up on a pedestal for their lack of salary; they live like kings regardless of which form they dispense their wealth to themselves. i.e., it's easy to live on $1 a year if literally all your expenses are paid and funneled back to you in other ways, or you have millions/billions in the bank so you are just living off of your savings. Obviously at one point or another those individuals paid themselves handsomely in order to get those savings in the first place.

So bottom line: there's nothing wrong with paying yourself the company the is doing well enough to support your compensation, but if your salary is the difference between the company's success or failure, and you don't need the salary to live -- then you might consider not doing so or giving yourself only modest compensation.

Also pay attention to the laws that govern reasonable salary for material participants in companies. I'll leave the details to the lawyers; just be aware that there may be legal reasons you must pay yourself a reasonable salary if the company can support it.
OPOLOT EinYat EMMANUEL
1
0
OPOLOT EinYat EMMANUEL Entrepreneur
Biomedical Engineer
I had the very same query sometime back and the best answer I got was; "Leaving cash in the business makes sense when your plan includes growth in some way shape or form, but if you've reached a point in your business's life cycle where you can confidently sustain the desired revenue you want in light of your existing financial obligations, and there's no investment or business-related reason not to be paid, it's time to enjoy the fruits of your labor. Owning a business requires plenty of "sweat equity," and initially often results in working far harder than you're being compensated for-and earning less than if you worked for someone else! While that doesn't mean you have to work for free for the duration of your entrepreneurial life, the best time to take a salary is a unique circumstance that you should determine based
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