Tod Sacerdoti: Let’s Talk About Founder Compensation
Mar 17, 2022
39:09
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Quick takeaways
Founder CEOs often receive less compensation than replacement CEOs, highlighting the need for fair founder compensation practices.
Balancing personal gain with long-term company success is crucial for founder CEOs navigating compensation decisions.
Deep dives
Compensating Founders: A Historical Oversight
Founder compensation has been inadequately managed over the past 10 to 20 years, with a tendency to either ignore or underestimate the importance of fair compensation for founders and CEOs. This neglect stems from the perception that these individuals are already overpaid. A critical issue arises when startups fail, leading dedicated founders to be undercompensated after investing years of effort. An overlooked aspect is the dual nature of compensation—cash (reflecting immediate gains) and stock (aligned with long-term value creation).
Differential Founder CEO Compensation
After the initial founder grant vests, a discrepancy often emerges between the compensation of founder CEOs and replacement CEOs. Boards must carefully assess this difference, particularly in moderate or unsuccessful business scenarios. Contrary to common practice, the founder CEO may warrant higher compensation than a new hire based on their extensive knowledge, relationships, and overall alignment with company objectives.
Balancing Compensation Needs as a Mercenary or Servant CEO
Founders navigating compensation decisions must consider whether they aim to optimize personal gain or align with the company's long-term success. Striking a balance between being well-compensated to alleviate financial stress while fostering a culture focused on sustainable growth is crucial. Transparency and aligning personal needs with the company's objectives are key elements in addressing compensation challenges.
Impact of Founders' Sacrifices on Compensation
Founders often make sacrifices, such as re-vesting already vested stock or appeasing investors, for the company's best interests. These decisions may impact their overall compensation and future outcomes. An analysis of how compensation behaviors drive performance and incentives highlights the need to address the complexity of founder compensation proactively for optimal business growth.
Tod Sacerdoti is Founder and CEO at Pipedream, a platform that lets developers connect APIs remarkably fast.
Tod and Auren are both serial founder CEOs who dive deep into how go-forward compensation for founder CEOs is way LESS than that of a replacement CEO. They explore ways to solve this problem and tactics founders can employ to restructure their compensation.
World of DaaS is brought to you by SafeGraph. For more episodes, visit safegraph.com/podcasts
You can find Auren Hoffman (CEO of SafeGraph) on Twitter at @auren and Tod Sacerdoti at @tod
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