Founder Compensation

As a founder how do you determine what your own compensation should be? & what is the right salary to be drawn across stages?

Here's how we Matrix Partners India think about it, tune in:

Salonie:

How should founders be thinking about their own compensation and more importantly whose responsibility is this part, to think about?

Avnish:

Founder generally their opportunity cost is very high, there is no way that a company will be repaying a net market, is my guess, the real alignment with the founder’s interest comes because of their equity ownership and the investors equity ownership, they are putting in that opportunity cost for the equity ownership. That said, I believe founders should be compensated at some level of quote, un- quote fairness. Now that fairness is a very subjective talk, what I’ve observed as market practice is when companies don’t have much money just like we’ve talked about in the episode of burn-rates, typically founders will draw one and a half to two and a half lakhs a month, each of the founders.

And also remember founders are setting up a tone for their entire organization. I know companies like Ofbusiness where Asish prides himself of the fact that people have to join in by at least taking a 40 – 50% cut, otherwise they don’t have a founder’s mindset. So, I would say something like 30 lakhs, call it 2 lakhs to 2 ½ lakhs a month, 30 lakhs. Then going to 60 lakhs then crore, crore and a half, may be when a company has raised series B. But more importantly then a number, I do believe that companies need to have a performance driven culture and I think we probably discussed this in one of our episode’s. So I’m a strong believer in variable compensation, whatever be that no, two and a half lakh or 5 lakhs, pick whatever no, I believe companies should have and founders and senior management should have 50 to 100% more as variable compensation and in the process of deciding that carriable compensation it forces alignment between the board, the investors and the founders and I’ve talked about this rule of thumb before 50 to 100% at the founder level and each level below half of that should be variable, call it 25 to 50% at L minus 1 and so on and so worth. And it creates a performance driven culture that aligns the whole organization as well as the board and investors and typically the payout should be 80 to 120% of the targets of that company. Actually, we follow a similar_

Salonie:

At Matrix, I was just relating that.