One of my recent investment red flags articles titled, “At What Point Does A CEO’s Salary Raise Serious Red Flags With Investors?” – which underscored appropriate salary ranges for a startup CEO – sparked quite a discussion on a prominent LinkedIn angel group.
I believe that a CEO’s salary should depend on a company’s capitalization, its revenues and the CEO’s success in amassing shareholder value. While some commentators argued that a more generous salary would attract a more proficient CEO, the overwhelming majority felt that a startup CEO should forego compensation or at least “live lean” until the business is generating sufficient revenue. I think Georgi Manolov, Partner at KOWN, a European-based Investor Club, summarized it best when he wrote, “Investors don’t pay salaries. Customers do.”
The conversation also raised questions of ethics. For example, what if a CEO raises his salary while the business is deteriorating? While the angels agreed that this would be considered morally offensive, it would not likely rise to the level of fraud. But, in order to protect against this type of devious behavior, some investors suggested that shareholders possess some sort of discretion over CEO’s salary – perhaps through board representation.
Regardless of one’s ethical code or where he stands on the salary debate, no one would disagree that a CEO’s most important attribute is her commitment and dedication. This leads me to my next question: is it acceptable for a CEO to simultaneously hold an employment position with another company? Is it forgivable if he has waived his salary at the startup? Would the CEO’s failure to disclose this moonlighting gig to prospective investors be considered a material omission – whether he is on the payroll or not? What if the CEO is already taking a salary well above the normal startup range, yet still keeps working that second job? When does it change from a moral issue to a legal one?
Share your insights below. I’d be curious to hear what you all think.
This article was originally published on LinkedIn Pulse
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