Setting salaries for management of any business (new or old) has always a tricky thing to do. Some startups openly discuss and talk about their company’s salaries and even share internal details online. Buffer is pretty good at this. Check out their salary formula here. Others will do everything they can to keep it a secret. As a CEO, how much money is good enough? Is there a metric/market rate as CEO? is it based on industry, company metrics, or what’s left over?
These ideas from redditors can help you decide and take the best decision in the interest of both you and your company.
1. Elmononymous
Sure you can take a 6 figure salary and then some – but if I’m in your shoes I know I have more to gain from profits and or increased equity value – I take what I need – minimum to live without stressing about personal finance and put the rest into sales/marketing/staff that can help my business grow further.
Personally, I believe looking at ‘salary’ as compensation is an employee mindset – from a business owners perspective, salary is what you pay people to make you money. The question to ask yourself – let’s say you can live off 50K, but you know your company can afford to pay you 100k, is that extra 50K going to get that much more value out of you, or would it be better spent on hiring or marketing, what is best for your company?
2. Raidicus
On the flipside, you should be investing in yourself and not just your business. 50K in many cities wouldn’t be enough to save money for a rainy day. While everyone is confident their company will make it, statistically we know that not every business lasts 10 years. Why not take a salary that allows a softer cushion if the business were to fail catastrophically in the next 5 years.
It’s bad enough to lose your company, why add to that “I have no savings because every penny went into my business”
3. MNHTN
100k is a good spot for founders, in my opinion. it’s enough to live comfortably (in most places) with money leftover to save. the most crucial people should be happy, and that usually gets the job done.
Taking much more than that would definitely be seen as greedy and not in the best interest of the company, barring some special circumstance.
4. improvidesnick
Best advice I can give is to speak to your accountant about what the tax implications are, since this can save you a huge amount of money. I’m in the UK where the income tax is higher than the corporation tax I pay for my company. So for me it makes sense to pay myself a salary of £10,000 (about $16,000), but then make up the difference with dividends.
I get that since there are multiple other people involved here it will be slightly different, but it’s definitely worth thinking about.
5. StudentofDuckworth
If you are taking VC funds, then your salary will be negotiated as part of the term sheet. But be aware, regardless of what you set your salary at, It can change based on the needs of the company.
For instance, when I took my A round, I negotiated a salary of $175k. But because of cash flow issues when were were first finding our feet, I voluntarily reduced my salary to $125k. Even then, there were two 3 month periods where I went without salary at all (and by the way, if you do that, be prepared that you will never be able to reclaim that money, especially if you are raising a B and C round).
6. _rerun984
It really depends on the structure of your business – i’m going to guess that you’re not an LLC since you technically can’t put yourselves on payroll.
As a CEO of an INC, since you’re an owner, you’re hit with SE tax. The benefit of this is that SE tax only includes State and Federal.
The rule of the thumb is any salary you give yourself needs to be defendable. In my situation my partner and I take weekly draws as our main form of income but set ourselves up as salaried managers – we took the industry standard of what the wage was and divided it by 2, since we split the responsibilities.
My on paper Salary is now only about $28k – in which I pay full taxes. I will make over a 100k in real tangible dollars, but doing draws with a defensible salary enables me to save something like 15% of my taxes over the course of the year.
In short – keep it as small as possible if you guys take draws.
Follow the discussion on reddit here.
