Start-ups offer a valuable lesson on CEO pay

By
Scott Kirsner





Globe Correspondent

/
March 30, 2009

The great compensation debate. In a recent blog
post, Boston venture capitalist Jeffrey Bussgang wondered about the
differences in compensation between chief executives at Fortune 500
companies and those running start-ups. Installing a few start-up chief
executives on the compensation committees at major public companies
might not be a bad idea, he suggested.

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10 egregious bonuses

As furor of executive excess grows, see some dubious payouts

Perhaps the most successful venture capitalist in history, Sequoia's Mike Mortiz (backer of Google, Yahoo, PayPal,
to name a few reasonable wins), said in a recent interview that one of
the ways he decides whether to invest in an entrepreneur is how much
they plan on paying themselves. Moritz views high salaries with immense
suspicion. If the founder takes a modest salary (in start-up land,
that's typically $100-200k per year - well below even President Obama's
[proposed] $500k cap), he knows they believe in the future value of
their business. We at Flybridge Capital Partners are currently looking
at a new deal with DFJ and one of the general partners there reported
that her best CEOs are proactively, voluntarily dropping their annual
salaries to $75-100k in this environment. Last month, one of my CEOs
informed me that he has decided to forgo his 2008 bonus, which he
earned by beating plan.

Why this seemingly irrational behavior
from entrepreneurs? Remember, entrepreneurs aren't saints or selfless
do-gooders. They typically work 80-100 hours per week for two reasons.
First, they are passionate about their venture for the sake of the
business and its impact on the world more than the money. . . . Second,
when it comes to the formula for making money, they care only about the
value of their equity - current cash is to pay the bills (in some
cases, not even that). They want every possible dollar to go towards
building shareholder value. They want to prove to their investors and
employees that the risk they took in investing in them and joining
their cause will pay off.

Why don't Fortune 500 CEOs feel the
same way? Why is it that they don't view their role in life to prove to
the shareholder that buys their stock in the public market that they
took a worthy risk and they'll be darned sure it pays

more...http://www.boston.com/business/technology/articles/2009/03/30/start_ups_offer_a_valuable_lesson_on_ceo_pay/