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Where Can I Find Information on Starting Salaries for a SaaS Startup?

Q: Where can I get some good starting salary information for a SaaS startup?  I need the information for CEO, CFO, CIO, CINO, Director of Sales. How much should the starting salaries vary for a startup with $5 million vs $10 million gross revenue?

A (Brad):  First of all, you can find a great deal of info on structuring employee compensation right here on Ask the VC. We have posted about this topic many times in the past and have often covered specific aspects in great detail – take a look at the Compensation archive. Although many of the posts found within the archives relate to the question, the few listed below are a targeted to your question.

The CompStudy report, written by Harvard University Professor Noam Wasserman, is also extremely good. It’s a yearly report on the current equity and cash compensation within private companies. Noam also has an excellent book related to startups (but not to compensation) titled The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.

The numbers we list here on Ask the VC or those found within published market reports are based on average market data and should therefore be used as a general guideline. Many variables like the company’s age, current revenues, profitability, geography and others all come into play when structuring compensation packages.

Finally, I have a belief that most of these compensation studies have a frustrating survivor and reporting bias that tends to cause the numbers to be inflated. So, use them to calibrate, but not justify, your numbers.

January 3rd, 2013 by     Categories: Compensation     Tags: , ,
  • http://www.Wishery.com Cooper Marcus

    “Finally, I have a belief that most of these compensation studies have a frustrating survivor and reporting bias that tends to cause the numbers to be inflated. So, use them to calibrate, but not justify, your numbers.”

    I suggest you DO use the studies to justify – the CompStudy report is, as the author suggests, “extremely good”. Keep in mind that investors have interests that don’t align with founders in the area of compensation; they want you to be paid enough to be motivated towards success, but no more, while the founders want to be paid as much as possible (to get you through the lean times between funded startups, and to make up for the high likelihood that your startup will never generate any meaningful exit for the founders).

    So, when an investor says suggests that compensation studies may inflate compensation, remember that everything is a negotiation, and they may be trying to “anchor you low”.

    • http://www.feld.com bfeld

      Cooper – I strongly disagree with that motivation. While some investors may do that, and other entrepreneurs may want to maximize their short term comp, most of the entrepreneurs I work with recognize that as long as they are cash flow negative, they are consuming “equity” with their comp (in that they need to potentially raise more money to cover their comp, which dilutes the amount of equity they have.

      In addition, most of the comp inflation I see is not with founders, who are very sensitive about this, but with the senior employees who try to max their comp and equity, but are not nearly as sensitive to the dilution as the founders are.

      • http://www.Wishery.com Cooper Marcus

        Good points Brad, thanks for the update.

        Perhaps you could clarify the survivor and reporting bias that skews the salary survey numbers high? In other words, why are startups that “survive”, and founders that respond to these surveys, more likely to have higher salaries than startups that “fail” and founders that don’t respond?

        • http://www.feld.com bfeld

          Survivor bias: Companies that fail drop out of the list over time. You could argue that they failed because of incorrect comp, but that would be confusing cause with effect.

          Reporting bias: I know many CEOs who either don’t respond to these surveys or respond in a non-rigorous manner (e.g. they estimate). Rounding up, even to the next 10k level, can have a meaningful impact.

          I’ve also seen the continual upward drift every year – sort of like the “ok – it’s a new year – let’s give raises” that has nothing to do with company success. This drift becomes more pronounced over time, until there ‘s a big downturn, at which point salaries go down, but some of the actual reporting lags the shift. Remember that it’s also hard to lower salary on existing employees.

          There are plenty of other problems that cause the numbers to skew up.