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Startup Jobs: Cash, not Perks

The best reason to ask for a raise right now? Your new boss probably just got one—but you might want to forget about the country club membership.
August 28, 2006

It’s official. The bust is over and hiring in Silicon Valley
is up. But if things are looking good in the land of startups, they’re looking very, very good for the executives running them.

In a July survey of 500 chief executive officers across the valley by the Bay Area Council, 39 percent of the respondents said they expected their workforce to increase. Things are particularly exciting, however, for the chief executives, who are getting more offers and better compensation, say a number of hiring experts around Silicon Valley.

The good news begins at the top. The most popular post in executive hiring is that of chief executive, said Thomas Taft, managing partner of the Seattle-based Laurel Group, which specializes in executive search for startups.

Experienced leaders are needed because many of the Silicon Valley technologists who are starting innovative companies and grabbing good funding are too young to grow the business. Opportunities are especially plentiful in wireless, vertical search, software as a service, and social networking, said Mr. Taft.

‘The venture community still wants someone with scar tissue and gray hair.’

-Thomas Taft, Laurel Group

“The venture community still wants someone with scar tissue and gray hair,” said Mr. Taft. “They are saying ‘I don’t care how smart you are… nothing makes up for experience.’”

The right kind of experience, however, is important. Venture capitalists and board members at startups are searching for chief executives who have experience growing a business from small beginnings to an IPO or an acquisition.

As a result, executives running divisions of large companies such as Microsoft, Sun Microsystems, Oracle, or Hewlett-Packard are not as popular as those who have run startups, experts say.

Another in-demand job: chief financial officer, said Jack Scott, managing partner at executive search firm Heidrick & Struggles. Tough regulations such as the U.S. Sarbanes-Oxley Act are pushing startups to hire smart financial people well in advance of an acquisition by a public company or a stock offering.

“A combination of growth, shorter tolerance for non-performers, and Sarbanes-Oxley has led to a different approach for board members being actively involved with their CEOs,” Mr. Scott said.

More Offers than One

Those who are the right fit for the new breed of startup jobs have more bargaining power nowadays that they ever did, experts are saying. “If you call a candidate a seller, then it’s a seller’s market,” said Mr. Scott.

VCs and board members are taking longer than usual to find the right candidate. About a year ago, the Laurel Group was averaging about 55 days to find a chief executive. Nowadays the search can take 120 days. “Candidates have multiple offers which are much more competitive,” said Mr. Taft.

In one instance, an executive search for a Bay Area tech company took almost a year, said Mr. Scott. Chief executives are getting multiple offers and are not showing a willingness to relocate for juicy assignments.

“We’re not seeing executive relocation because there is so much in their backyard,” said Mr. Taft.

The process is also not as simple as it used to be, as candidates and recruiters spend several meetings “courting” candidates, discussing strategies to make the company grow, Mr. Taft said. It’s more like doing a rehearsal of your job before you get it.

In some cases, recruiters don’t hesitate to conduct psychometric tests on candidates such as IQ tests, cultural tests, leadership quality testing, and interviews with industrial psychologists, said Umesh Ramakrishnan, vice chairman at Cleveland-based executive search firm Christian & Timbers.

Show Me the Money

Those who get past the battery of tests, however, can get a rich mix of cash and equity. Typical executive compensation can amount to up to $250,000 annually, plus an equity stake of 8 to 12 percent in the company, said Mr. Taft. At the vice president level, candidates are offered $175,000 to $200,000.

More experienced candidates, however, may opt for less cash and up to 15 to 17 percent of equity in the company. Cash is still attractive, however.

In one case, chief executive compensation for a Bay Area startup went as high as $450,000 plus equity, said Jonathan Visbal, manager of the Silicon Valley office of executive search firm Spencer Stuart. He won’t name the individual for privacy and contract purposes.

No Bed of Roses

But while compensation is up over the past four years, so are expectations. Much of the compensation is performance-based, meaning chief executives get a certain percentage of their promised salaries provided they meet certain performance metrics such as revenue, said Mr. Ramakrishnan.

And the perks that chief executives receive certainly don’t compare to what they got in the bubble days of the late 1990s. In fact, they hardly ever get any.

“These are not the days of country clubs and private jets,” Mr. Ramakrishnan said. “Today you see a lot more performance-oriented jobs.”

Mr. Scott of Heidrick & Struggles said perks for board members and investors are not as high as they were before. “There is overall a shorter runway for senior executives; boards expect more and shareholders expect more,” he said.

Other Silicon Valley-specific perks such as forgivable loans, low-interest home loans, relocation expenses, as well as temporary housing have disappeared. “It really comes down to base, bonus, and equity compensation,” said Mr. Scott.

Good stuff to keep in mind, whether you’re negotiating for a job in the corner office, or looking for a little more compensation from someone who’s already there. If she’s not getting a free ride at the local country club, you might want to ask for cash instead.