2017 Startup Compensation Report & How To Understand It

Fountainhead News: Apr 14, 2017

Many many moons ago, back when I used to be an Actuary and Compensation expert in the Human Capital Consulting space, I used to benchmark Board, Executive, Sales, and All Employee compensation and benefits. That included all of the components of what we call Total Compensation:

• Base Salary
• Annual Incentives: target % and actual
• Total Cash Compensation (TCC) = Base Salary + Annual Incentives
• Long-term Incentives (LTI): RSUs, stock options, restricted shares, phantom stock, etc
• Total Direct Compensation (TDC) = TCC + LTI
• Health & Welfare: dental, medical, vision, etc
• Retirement: Pension (50% prevalence, see the PBGC) + 401K match
• Total Compensation = TDC + Health + Retirement

We would value these against a company’s peer group of about 20 companies or use surveys from the likes of Towers Watson (former employee) that give compensation reports for the 25th, 50th, and 75th percentiles.

The goal is to add up all the components of pay and then benchmark Total Compensation. Because one company could pay you more in LTI than in cash compensation (i.e., Amazon and most startups) while some companies offer a pension plan that already puts your total compensation at the 90th percentile (i.e., government workers).

The goal was to make sure your target comp was aligned with the market 50th percentile and then show a % above or below that median amount. You let performance dictate the variance from 25th to 75th. So, if you meet your goals, you get media pay, if you blow them out of the water, you get 75th. And you need to make sure your goals aren’t layups nor impossible to achieve.

The profession is an art and a science, but at its very core, all about gathering good data. As they say, garbage in, garbage out. I even used to write public proxy disclosures (DEF 14A) for F500 companies.

The startup world never really had great compensation reports but today I came across one that seemed to hold water. PitchBook partnered with J Thelander to produce their 2017 Startup Compensation report. Here are the jobs included (important):

And here’s what the General Industry CEO report looks like across the entire survey population:

What you really want to do is drill down into the job, the amount of funding, and industry across the 900 United States startup sample size (i.e., Seed Series AI startup):

What this tells you is if you’re a US-based startup who’s raised less than about $50M (the cutoff for YPO, by the way), then this is a good survey for you to benchmark Total Direct Compensation (TDC = Base + Bonus + LTI) compensation against.

I’ll give them a recommend.

— Sean

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