I get paid to do this? Setting your own salary as a progressive founder

Why giving yourself a raise might be in service of your mission

You’re afraid your startup will run out of money. You worry that other staff or funders will think that you are greedy. You don’t know how much of your personal savings you feel comfortable dipping into — or you don’t have savings, have student loans to pay, dependents to support. You know you’re not paying your other staff as much as they deserve. You’re already more financially secure than the people who your non-profit serves or works with, but you also feel that non-profit staff like you are chronically underpaid.

Welcome to being a progressive entrepreneur and trying to figure out your own compensation package.

Patterns in progressive founder compensation

So, how much should you pay yourself? And when should you start? It’s a question I asked myself as the Founder of SumOfUs, and one I hear from other founders a lot — most recently in my role as Entrepreneur in Residence at New Media Ventures.

I decided to talk to a bunch of progressive startup founders — both for-profit and nonprofit — to try to answer this question. It turns out there is no simple answer, and certainly nothing remotely close to one-size-fits-all. However, here are some of the common patterns that emerged:

1. Most founders do not draw a salary from their startup as long as they are working full-time or nearly full-time at another job — in other words, while their organization/company is a side project.
2. Many founders do not draw a salary for their work on the organization early on, even after they are working on the project at least half-time. This phase might last for anywhere from a month to a year. Often this period is not continuous: Founders might draw a salary when the organization is doing well, and stop when it’s doing poorly.
3. In their first year or two, many founders draw some income from consulting work not related to their core organizational product. (This income might come on the side through a consulting contract, or through the legal entity of the organization they’re founding.)
4. During a startup’s first few years, most progressive founders are dramatically underpaid relative to their “market value” (what they could earn if they just went out and found a job). In the for-profit context, this under-compensation might be offset by their stake in the company. But in the non-profit context, there is no similar potential for a long-term payoff.
5. Often, once a non-profit becomes sustainable, the board will raise the salary of the founder to “replacement value” — the amount that the board believes that they would need in order to replace them — even when the founder hasn’t asked for it and feels uncomfortable with the raise. (Boards can feel uncomfortable with an organizational budget where other expenditures are artificially and unsustainably inflated by the ED’s low compensation. For example, it’s problematic to hire another staff member who you wouldn’t be able to afford to keep if the existing ED had to be replaced.)
6. It’s normal to feel like the decision about how much to pay yourself is really hard! Almost no progressive non-profit founders, and only some progressive for-profit founders, report feeling fully comfortable with their compensation in the early stages of organizational growth.
7. Founders with less economic privilege have fewer options when it comes to when and how much to compensate themselves, which unfortunately makes it harder for their organizations to succeed and reduces the diversity of those who go on to lead organizations in the progressive sector.

Advice from founders

When you’re figuring out your own solution, here are some pieces of advice from me and other founders.

Advice for everyone

Overall, you should not let yourself or any other co-founders/early staff go into serious personal financial stress because of your progressive startup. This rule is not just about being kind to yourself, it’s also 100% mission-oriented: Your startup is a lot less likely to survive if you are constantly stressed about money at a personal level, or are forced to quit due to a large unexpected expense. None of your donors or investors want that, either! Here are a few specific hard lines that founders recommend:

1. Do not take on new personal debt because of your startup, nor stop making minimum comfortable payments on existing debt.
2. Always make sure you have a cushion of at least 3 months worth of living expenses — either in terms of cash on hand, or money you could realistically get quickly, on extremely forgiving terms, from family or close friends. (Ideally, this should be 6 months, but I want to be realistic that some startup founders simply don’t have the financial resources that others do.)
3. Never give up health insurance, the ability to afford to eat a healthy diet, or other key factors in your (and your dependents’) physical and mental health.
4. You should sit down and make a list of your own additional boundaries, which may sound very different from those above. E.g., you may not feel comfortable with less than $X in savings, or it may be important to max out your Roth IRA every year while you don’t have access to a 401K. These are also extremely reasonable lines to draw.
5. From as early as possible, make sure you are compensating other staff well enough that people with reasonably large financial obligations (student loans, children or other dependents, etc) can afford to work for you. Otherwise you will end up with a very economically privileged team — or a team under significant financial stress of their own, which will hurt their performance and increase turnover. (If hiring for diversity, equity, and inclusion is a priority (and I think it should be!), you may also want to check out some tips here.)

Advice for early-stage non-profit founders

1. You may choose to go for some periods of time without any compensation. You should only do so if you can avoid coming to view yourself as a martyr compared to other staff (including future staff). If you will feel resentment towards other staff who don’t make similar sacrifices, it’s probably not worth doing.
2. Relatedly, in times of financial stress for your organization, consider deferring your salary until better times — at which point you would pay yourself back — rather than refusing the salary altogether. This means that your sacrifice doesn’t accumulate over time into a deeply unfair amount compared to other founders or staff.
3. In most cases, it’s normal and OK to pay the ED well under their market value for a few years — as long as the ED can afford to live on that salary without taking on major financial stress.

Advice for later-stage non-profit Executive Directors and board members

Two set points you should consider when setting the Executive Director (ED)’s salary are “market value” and “replacement value.” Most importantly, the ED’s replacement value is how much it would cost for the organization to replace them. Secondarily, you might also want to take into account the ED’s market value: How much they could make in another role if they literally just went out job-searching at similar progressive non-profits, with their existing skill set.

An early-stage founder/ED’s replacement value usually can’t be defined — because the organization would literally collapse if she were hit by the proverbial bus. So replacement value generally only comes into play after 1–3 years of the organization’s existence, when the organization turns what I think of as the “sustainability corner.”

The sustainability corner is the point where the founders could leave the organization and it would still survive and thrive. Revenue is often the bottleneck in turning the sustainability corner, but it’s not the only factor. For instance, you must also have built a resilient governance structure. And once you have a strong, independent board, the founder is no longer paying themselves — the board is paying them, and the board can and should set the terms for the leader’s salary.

Hence, three big pieces of advice:

1. Board members: When the organization turns the sustainability corner, you should insist on paying the ED their “replacement value” or something close to it.
2. Founders/EDs: Good governance is important for a wide range of reasons, but in this context a big plus is that it takes a lot of the psychological pressure off of negotiating with yourself.
3. In my experience, EDs (including me!) often feel uncomfortable when this transition happens. It can feel like giving up control of the baby you raised — this might be the first time that a budget decision gets made by someone other than you, and the rationale is based on planning for a transition that you might hope never happens. Board members, insist on it anyway. EDs, learn to get over yourselves :-)

Advice for co-founders (for-profit or non-profit)

1. In situations with co-founders who are both working full-time on the startup, a common pattern seems to be for the two co-founders to take the same compensation early on — even if they bring different skills, needs, replacement value and/or market value. But this even split is not always appropriate or possible. You may want to bring in an outside expert or a skilled mediator to navigate this question, or defer the decision to your board.
2. When co-founders are putting in different levels of time commitment (e.g., if one has a 3-day-week job external to the company, while the other is full-time at the company), the calculations and negotiations can get even trickier. Don’t expect this to be easy, and don’t assume that you already know what the other person wants or would make them happy. Use non-violent communication principles and interest-based negotiation techniques. Check in about how the split is feeling early and often, and don’t hesitate to bring in outside help.
3. If you started out with equal co-founder responsibilities, and one of you becomes the Executive Director/CEO while the other assumes another job title, you should be clear at that point about where decision-making responsibility for future salaries now lies. The board is responsible for the ED/CEO’s pay, of course. But does the ED/CEO becomes responsible for setting the other co-founder’s pay, just as they are responsible for setting all other staff’s pay? This may feel awkward, but it’s often the right thing to do. An alternative is for the board to continue to set both co-founders’ pay directly. This solution could be appropriate when the second co-founder is in a very senior role like COO, but should generally not be used in other circumstances.

The bottom line

It’s easy to agonize over your pay in a mission-driven context, and it’s easy to resolve those concerns by putting yourself in a position of personal financial stress. The truth is, though, your time, energy, and focus are the single biggest resource your organization or company has. It serves no one for you to be operating at a level of personal financial stress that reduces the headspace you have for the organization’s problems. Pay yourself, your co-founders, and your other staff at a comfortable level, as soon as possible. And have early and open conversations about your compensation philosophy with co-founders, board members, and staff, so that resentments don’t build.