Hey Jonathan: Is it OK to give myself a raise, or will my investors get weird about it?
Is it OK to give myself a raise, or will my investors get weird about it?
— Strapped Founder in Mountain View
As founder, it’s totally valid to give yourself a raise, as long as you apply the same reasoning as you would to any other senior team member asking for one.
As investors, we want you to be thrifty but not to such a degree that making the monthly car or mortgage payment distracts you from building the business. It’s one thing to brag about paying yourself a “ramen salary,” but seasoned investors recognize that’s not sustainable. You’re making your life harder if you flirt with “ramen profitability.” We want the business risks to be your main focus — not the risks of letting your kids go without new shoes.
People get raises for just a few reasons:
1. To recognize their increased contribution to the business’ success (often associated with a promotion).
2. To address inequities between comparable peers’ compensation.
3. Because the business outperformed expectations, which creates opportunities for bonus cash, an equity grant, or other compensation.
Now look in the mirror. Yes, you founded the company and you’re probably still its most valuable employee. You’re handling the basic CEO responsibilities: leading the business, ensuring there’s enough cash in the bank, and taking out the trash when needed.
But relative to a year or two ago, how has your role become more complex? You’ve almost certainly become a more seasoned CEO … in what measurable ways has your leadership and management footprint expanded? When you take time to get your arms around your growth, you may be surprised how strong a case you have. Here are just a few milestones we see CEOs reach as they mature; each one makes them more valuable:
· Managing managers, versus just individuals
· Hiring functional VPs, such as a VP of Marketing
· Adding direct reports
· Offloading functions to new leaders
· Expanding geographical reach/number of offices
· Growing sales
· Managing to an annual plan
Less often, people may get raises when two employees perform equally valuable roles but are compensated differently. In an earlier stage company this usually takes the form of founders taking different roles and recognizing that there’s only a single CEO seat (and it’s lonely). We typically see 10–15% compensation differences between founders who play supporting roles versus the person in the CEO seat. This signals to an investor the founders have already had a difficult conversation of when being equal isn’t always equal. If your cofounders feel there’s too large a gap, the negative feelings will exacerbate and surface in the future.
So I say go for it, Strapped. But promise me you’ll maintain some professional detachment when talking about your compensation with investors and advisors. Obviously, what you make matters a lot to you: it’s personal by definition. But I’ve seen more than one founder overplay the I-built-this-company card as part of an impassioned plea to take home a little more dough, when they could have simply laid out a businesslike rationale and been on their way to less awkward topics.