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Equity compensation for Startup CEO?

 A company has grown to $10 million in annual sales and is looking to hire a new CEO to ramp up growth with new products  in new markets, and with new channels. 

I would like to get some benchmark information on what % ownership is typically given to a well qualified new CEO at this stage in the growth cycle. Are there any guidelines as to how the percentage might change as the Company grows?  The ownership would vest over 4 years.

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

For a CEO, equity awards should be directly related to the impact derived from he/she coming on board, not a standard percent:

- Base salary is related to maintaining the $10 million running rate;
- Annual Cash bonus = 50% of (annual revenue assumption - $10 mill) * 10%
- Annual Equity Vest = 50% of (annual revenue assumption - $10 mill) * 10% for four years.

The actual shares and percent ownership would be relative to your valuation. In the structure, include a minimum equity award of 5% and a maximum equity award of 10%.

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

If the company has raised venture capital it would be in the 5 to 8% range of equity; if the company has been boot strapped then the equity should be higher as the employees have greater ownership of the company. Regarding the future, there would be equity negotiated with the Board, typically if another investment round is needed which would dilute the CEO share of the company. The Board could also set up some equity awards that are tired to revenue growh.

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