What are the typical components of a CEO’s compensation? How are CEO contracts typically structured?

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JASON LEMKIN

I’ll answer this from a start-up perspective, and assume you mean bringing in an outside CEO to run your start-up.

Most “outside” CEOs, that are brought in to run a start-up, will be looking for 6-8% equity in the company.  Maybe 4-5% if it’s mid-stage.

How that range became the magic number I have no idea, but it is the range.

In some cases, they’ll also seek partial anti-dilution protection if a fundraising is imminent (or even if it isn’t).  I.e., 7% … but after the next round.  This may sound greedy or selfish to an outsider, but from the CEO’s perspective, the fact that substantial dilution is coming and already necessary isn’t her “fault” … so why pay for it?  If the company is almost out of money and I have to go sell 30% of the company to keep it afloat, why should I be diluted by that raise?

In terms of cash, it varies.  But they’ll be looking for more than anyone else in the company makes.  Assume $250k per year as a straw-man, plus bonus.

Also, at a more practical level, the all-in equity dilution will be far higher in most cases.  A new CEO will often quickly bring in his own, often more “senior”, management team.  This can be a very good thing.  But assume another 5% of the company goes to new management you might not have otherwise budgeted for.  And that the new CEO also seeks to expand the stock option pool by another 8-10% to account for other new hires as well.

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Published on October 25, 2015
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