Dear SaaStr: We’re Thinking of Bringing in an Outside CEO to Help Us Scale. How Much Should We Pay Them?
First, before you go down this path — are you sure? 90% of SaaS companies that IPO … IPO with the founder as CEO. That data here:
Are you sure the better answer isn’t to go find a great VP or two to help you scale?
Usually getting more seasoned help is a better answer. Usually an outside CEO doesn’t magically solve your growth or scaling problems.
If you are going to do it anyway, it is big move, and structuring their compensation correctly is critical to aligning incentives and ensuring they’re motivated to drive growth. Here’s how I’d approach it:
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Base Salary: For an outside CEO, the typical base salary in a startup post-Series A or Series B is around $250k-$400k, depending on the stage and the size of the company. If you’re further along—say $15M-$20M in ARR—this could go up to $500k OTE (on-target earnings, including bonuses). The salary should be competitive enough to attract top talent but not excessive to the point it drains resources.
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Equity: Equity is the real incentive for a CEO to succeed. Most outside CEOs will expect 6-8% equity in the company, possibly 4-5% if you’re mid-stage. This equity should vest over four years, with a one-year cliff, to ensure they’re committed for the long haul. In some cases, they may negotiate anti-dilution protection if a fundraising round is imminent.
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Performance bonuses: Tie bonuses to clear, measurable goals—ARR growth, profitability, or other key metrics. For example, you could offer a bonus structure where the CEO earns an additional $50k-$100k for hitting specific milestones, like doubling ARR or achieving a certain NRR (Net Revenue Retention) target.
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Stock Option Pool Expansion: Be prepared for the new CEO to request an expansion of the stock option pool to bring in their own team. This could mean allocating an additional 8-10% of equity for new hires, which is often necessary to attract top-tier talent.
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Alignment with Company Stage: If you’re early-stage, cash compensation should be modest, with equity being the primary driver. If you’re later-stage and cash flow positive, you can afford to pay more to de-stress the CEO’s life. The last thing you want is a CEO distracted by personal financial concerns.
Ultimately, the goal is to create a package that rewards the CEO for driving exponential growth and aligns their financial success with the company’s success. Make sure the equity package is meaningful enough to motivate them to think like an owner, not just an employee. If you structure it right, the CEO will be incentivized to grow the company aggressively while keeping long-term sustainability in mind.
But make sure this change … really makes sense. An outside CEO will never know the product, the problems, or in most cases, truly care the same way as a founder CEO.
