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Some tech founders are getting huge pay packages

wsj.com

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Re: Some tech founders are getting huge pay packages

#71

Post by q1w2 »

lph wrote: post #68

This article misses the more interesting thing, which is tech founders getting huge pay packages for companies that haven't yet delivered anything or have no realistic path to profitability. They call out WeWork and Theranos, but fail to see how close many of these others are to those. Archer? We're never going to see air taxis in our lifetimes. Nikola is already a collapsing scam. Bird? They are never going to be ab…

Sort of. The pay packages may be high in "value" but since they are all in multi-year vesting stock options, the founder still needs to make the company successful in order to cash any of that money out.

It's not like they're throwing tons of cash on him/her.

Re: Some tech founders are getting huge pay packages

#72

Post by q1w2 »

avs733 wrote: post #41
giantg2 wrote: post #37

Today’s tech founders who are lucky are getting huge pay packages. Plenty of small time founders out there who didn't start a unicorn.

Exactly…the packages that get reported on don’t get reported on for being the average or the median. They get reported on for being noteworthy. The last good data I saw (which I believe was 2017?) had median founder ownership at large exit for VC funded startups as something like 11%

... and that assumes an exit. The vast majority of startups simply die.

Re: Some tech founders are getting huge pay packages

#73

Post by wpietri »

JumpCrisscross wrote: post #54
wpietri wrote: post #52

Earlier quoted context omitted.

It seems a bit rich to look at a climate crisis created by current capitalism's "privatize the gains, socialize the losses" approach, note one recent small change nominally driven by a small subset of investors, and then declare investors actually good. If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at,…

> If you count all the times a major oil company made a climate-worsening choice because investors demand profits, and then count the choices like the one you point at, I'd expect it would be 99.9% the former Sorry, do non-market economies have a better track record when it comes to the environment? Eastern Europe says no [1]. Pollution intensity metrics relative to private property rights say no [2]. I cherry picked…

What you're doing here is creating a false dichotomy.

Eastern Europe is (or at least was) worse because the problem -- elites extracting wealth regardless of consequences to others -- was worse there. But it's not like self-interested elites capturing both economic and regulatory problems isn't a problem here. Indeed, in now might be worse here.

The two choices available aren't eco-collapse in the 1980s American greed-is-good capitalism style or the 1980s Eastern Europe totalitarian style. There are more things, Horatio. But if you spend all your time cherry-picking citations to soothe your fundamentalist capitalism feelings, you're not going to see them.

Re: Some tech founders are getting huge pay packages

#74

Post by wpietri »

cjblomqvist wrote: post #56
wpietri wrote: post #47

Earlier quoted context omitted.

The theory that maximum money gets you "the best" is... under-evidenced. It's just as likely to get you the greediest, the most manipulative, or the most opportunistic. A good place to start is with Kohn's "Punished by Rewards", which covers a fair bit of research on how intrinsic motivation is undermined by extrinsic motivation. The people I know who are great at something do it because they truly love it. Whereas t…

But all that research is not done on founders (haven't checked, but I've read research on this topic before) - so I'd argue it's basically difficult to know.

If you want to claim founders are different, you have to make the claim and justify it.

For example, you could claim that modern startups don't actually require people who are the best at anything except greed. Look at Uber or WeWork. Neither of those companies has ever turned a profit and maybe never will. But both of their founders walked away rich, rich, rich.

Re: Some tech founders are getting huge pay packages

#75

Post by wpietri »

andy_ppp wrote: post #61
wpietri wrote: post #47

Earlier quoted context omitted.

The theory that maximum money gets you "the best" is... under-evidenced. It's just as likely to get you the greediest, the most manipulative, or the most opportunistic. A good place to start is with Kohn's "Punished by Rewards", which covers a fair bit of research on how intrinsic motivation is undermined by extrinsic motivation. The people I know who are great at something do it because they truly love it. Whereas t…

I’m not convinced, essentially I’m saying businesses that have higher growth rates will get more investment and consequently pay higher salaries. For example the best developers already know their worth and I would suspect paying well to on average be correlated with better software. If you’re paying your developers $300k+ you’re likely to also remunerate yourself similarly well. I’d really be surprised if paying top…

Paying top rates is associated with more successful companies because the more successful companies have the money to pay top rates.

That doesn't mean they get the "best" people, though. I know good developers who have joined Google, ended up on things where they weren't learning much, and left Google for things that were more challenging. And I've known people who hopped between the various high-profile companies regularly to maximize salary. They were all smart enough, but they aren't people I'd want on my team because what they focused on wasn't the work or the colleagues, but getting the next promotion so they'd look more appealing next time they changed jobs.

Or you could look at the people in finance. I used to write software for financial traders. It was lucrative but soulless and frequently unpleasant. Some of the people I was building for were awful human beings. I left, and few of my former colleagues stayed in the industry. So in my view, finance pays more because to compensate for its flaws.

So I'd agree that on average a better software developer can command more pay than a worse one. But so can people who are more self-confident, more self-promoting, more exploitative, or less interested in things like net value to society, learning things, or working with good people. There are just too many factors to make sweeping statements, especially at the extremes.

Re: Some tech founders are getting huge pay packages

#76

Post by achenet »

niros_valtos wrote: post #24

As everyone else mentioned here, this article refers to full packages. With that said, there is no need to be a founder to get a huge chunk of $$$ - the first employees tend to do very well. The path to success is finding these founders and company that will move the needle.

There was actually a thread here on HN a little while ago about how early employees can actually end up with very little.

One memorable comment was "I am that early engineer that got nothing" (or similar, may not be exact quote).

Re: Some tech founders are getting huge pay packages

#77

Post by alisonkisk »

lph wrote: post #68

This article misses the more interesting thing, which is tech founders getting huge pay packages for companies that haven't yet delivered anything or have no realistic path to profitability. They call out WeWork and Theranos, but fail to see how close many of these others are to those. Archer? We're never going to see air taxis in our lifetimes. Nikola is already a collapsing scam. Bird? They are never going to be ab…

As Silicon Valley said, the product is not the app, and not thr Box, it's the company.

Re: Some tech founders are getting huge pay packages

#78

Post by motohagiography »

version_five wrote: post #59
motohagiography wrote: post #57

Earlier quoted context omitted.

Am not a pro investor, and this is sounding out an idea and not an opinion or advice. That said: Even without just being contrarian, it's worth considering whether bigger founder comp should be the norm. It may even be economically better to provide a founder with liquidity than redistributing cash back to investors where, if it isn't a significant multiple returned, the marginal value of the cash is net-negative. If…

This is an interesting theory - I dont have a counterargument, but maybe a conflicting theory of my own. A lot of VC money - (my theory) - is really just outsourced corporate R&D or "innovation" and founding a VC backed startup is often closer to taking a low to decently paid job in a big company's innovation team, where you manage a relatively small budget (on the scale of corporate budgets) to try and get traction…

While I don't disagree in substance, it's the order that twigged me. My impression has been that later rounds (B+) are all about risk attenuation like hiring steady hands to manage linear growth once the product is proven vs. early rounds (Seed to A+) are for PoC and scale, whereas I think of an IPO or private equity round is essentially an endogenous-innovation-death, and the company at that stage is just about optimizing existing cash flows, with any non-linear upside coming from reinvesting those flows to buy new startups.

Market rates for consultants are also basically double or more what they are for employees, so market rate for a founder should be measured against the median 250k-$1m a company would have to budget to get someone to do the equivalent job of a founder/dev/product-manager from a consulting firm, etc. If as an investor, you have put in $5m to a company you want to grow with an 18-24-month runway to the next round, that the founder is paid 2%, and not 10% of that is probably not positively correlated to the success of the venture.

Pre-revenue, I sympathize with minimum survival low founder salary as it's just a flyer at that point, but the moment there is revenue involved and now you have to grow and scale, founders could be taking a percentage of investment as the price of admission. Money managers who do almost nothing charge 2-3% to manage funds and rake 20-30% of any profit.

Experimentally, I would propose that a founder with skills who is building a tech product should be taking 10% commission and management fee on any investment as direct comp and 20% of the return on it at the very least. Maybe these numbers aren't right, but comparing what a founder does to what a fund manager does should yield some principles for evaluating founder comp.

If as an investor you allocated $10m to a hedge fund for 5 years, you'd be paying 2-300k/year to the manager and lose at least as much to inflation if it were in cash, and then if the next valuation was 3-5x, you'd be returning 6-10m to the founder for your 20-40m net profit. Seems like a lot, but compared to index funds, bonds, or cash that doesn't have that growth profile, that's still a very good deal.

Anyway, just thinking out loud about it, but incentives alignment is a really interesting problem.

Re: Some tech founders are getting huge pay packages

#79

Post by skinnymuch »

hogFeast wrote: post #60

The point totally missed here. The logic for share awards initially was to align the interests of shareholders and managers. The problem here is: you have founders often with supervoting shares, they usually have a huge role in appointing the Board, and they are basically looting everything that isn't nailed down from minority holders. The big change was Musk's package. When that happened, all hell broke loose. It is…

The Musk package doesnt seem that bad. Did any one think the metrics would have actually been met so soon? The ones after the first one he got are even crazier.

Yeah stock price as the main or sole focus for rewarding doesn’t make a whole lot of sense.

Re: Some tech founders are getting huge pay packages

#80

Post by hogFeast »

skinnymuch wrote: post #79
hogFeast wrote: post #60

The point totally missed here. The logic for share awards initially was to align the interests of shareholders and managers. The problem here is: you have founders often with supervoting shares, they usually have a huge role in appointing the Board, and they are basically looting everything that isn't nailed down from minority holders. The big change was Musk's package. When that happened, all hell broke loose. It is…

The Musk package doesnt seem that bad. Did any one think the metrics would have actually been met so soon? The ones after the first one he got are even crazier. Yeah stock price as the main or sole focus for rewarding doesn’t make a whole lot of sense.

The Musk package is financial genocide. The guy owns a ton of shares already, his incentives were totally aligned...think about this way: he owns 17% of the company already so 17% of the package comes from Musk himself, the rest comes from everyone else...that should make clear exactly what is occurring. The economics are totally fucked, he is getting paid 10% of the market cap in a year...when he isn't hitting targets (and the guy is borrowing money like crazy...I think he has borrowed something like $60bn, I don't think anyone has soaked a company this badly...I have certainly never seen anything like this in a company that wasn't fraudulent). It is amazing that no-one has sued the Board (but, again, the problem today is that these investors don't really exist anymore, the largest active investor in TSLA has a 1.5% stake).

This is the kind of thing that people will write about in 20 years and be like..."wow, that actually happened, no-one did anything".

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