How can I deal with my CEO asking me to hire someone with a higher salary than me, a co-founder?

Question

I'm the technical co-founder/CTO of a B2B startup. I created the product, our design, etc 6 years ago. Our board hired a CEO 4 years ago and they've been trying to get VC funding since they joined. They come from a very enterprise-heavy background/successful startups. We're successful with our customers which is why we've been able to stay afloat for so long without VC funding (we have taken other grants, though).

It has only been myself and another developer that I hired ~3 years ago (a friend that worked at the same company as me before) doing the development side of the company. I'd classify this other developer as "intermediate". Our company is close to getting $5 million in VC funding by early September. Or, that seems to be where the goal post has been moved to.

I have not had a salary increase in 3 years. I know that my salary for my skills/contributions is significantly lower than market rate. I have only about 2% of equity (or lower, see the comments of this question). I have received offers from other companies and I know I could be doing much better salary-wise... but my heart is very much in this product that I've created and I've been "holding out" for the VC funding.

The CEO has "promised" that once we get VC funding, my salary will "be adjusted accordingly". They have not mentioned actual numbers.

However, I've gotten pressure from the CEO that we need to start hiring more developers to scale/show the VCs why we need the money. We discussed hiring by market rate (or slightly more) because this job is more demanding than a typical "developer" enterprise job. The CEO says that we can pay by region as well (though, I disagree and think all developers should make equal pay regardless of where they choose to leave -- we shouldn't penalize that choice).

So, the CEO wants me to hire someone by end of April at market rate. I brought up that before we do this we need to make adjustments to both my salary and the other developers salary. The CEO laughed and said "welcome to management... I've been hiring people 2x my salary for all my previous companies... this is what management does!". They then explained: "all joking aside, there will be adjustments made with VC funding". They explained that they can't go to the board with adjustments because the money is physically not there. As a side note: I'm in the middle of also getting a $250K grant from the government that begins early May.

The CEO comes from a heavy sales/marketing background. Another point to this whole story is that other sales people/account executives that are being hired have 1.5x my salary.

I'm feeling very frustrated and hurt by this situation because I feel like I've created something and I don't have control of the compensation that I believe I should receive if this CEO wasn't the one running things.

I think both myself and the other developer should have salary increases before hiring any new developers and then on top of that I think I should be paid more because of the work that I did/still do as the creator as well as the "senior" developer.

What do I do?

Answer 1

Right now, you're being used, and the CEO is feeding you vague promises to convince you to let yourself keep being used. Demand appropriate guarantees. If you can't get them, walk.

If you had significant equity in the company, this would be fine, and even normal, but you don't, so it's not. Sure, the CEO might decide to up your pay once VC funding comes in... but he also might not, or he might "up your pay" in a way that doesn't amount to much, or doesn't pay you back for your years of investment. From the way he's talking, he's either running off of instincts that assume you do have a significant chunk of equity, or he's stringing you along and he knows he's stringing you along because thus far he's been able to get away with it and he doesn't see a good reason to stop. Neither of those is a good sign for your paycheck going forward.

Now, he's saying that right now, the company needs to burn as hot as it can, and it doesn't have the money for that, so it needs belt-tightening from its most invested personnel to make it happen. That's even a legitimate thing to say - but then he also needs to give you a reason to be invested. That's going to mean, at bare minimum, an actual contract promising a certain level of pay increase once the VCs come through (and some sort of guarantee that you get paid even if they drop you immediately thereafter). Even that can get pretty bad, because that stuff can keep getting put off, month after month. Better would be increasing your equity stake. if he won't (or can't) do one of those, and he won't (or can't) increase your salary... then walk. Just walk. go to one of those other jobs that will pay more. They clearly don't value you enough to actually give you a reason to stay, so don't. It's not worth it to martyr yourself on this thing just so someone else can get rich off of your baby.

It's in his best interests to keep you doing what you're doing for as little money as he can get away with for as long as he can get away with, and, as a CEO/people person, he's good at making that sound reasonable. Don't let him get away with it. As far as the board, it doesn't actually matter if it's the board or the CEO themselves that feels like you're not worth paying anything like what you're worth. That's a shell game. Whoever it is can take the blame for your departure once you're gone.

Answer 2

I hate to say it, but at this point it sounds like you're less of a founder/owner and more of a mid/upper manager. You have lost/given/sold 98% of the equity. You really don't have a lot of say in this.

Don't mean to be rude, but at this point, if the CEO says to do something, do it. Or leave. I don't see other any other options.

Answer 3

What do I do?

I think that's what you need to decide.
In an effort to help I will point out that a 2% stake in a company that was spun off from another one isn't horrible (like it would be if you founded it from the ground)
if your (~2%) shares cannot be diluted.

The CEO has "promised" that once we get VC funding, my salary will "be adjusted accordingly".

Your CEO has a sales background, so I'd advise you to discuss specific numbers.
If not you could hear, "Well I'd love to give you more, but the VC only provided X and our salaries (because of all the other new hires) is Y and that ratio is too high, so we just cannot give you a big bump right now."

Not to put to fine a point on it, but your negotiation leverage will never be higher than it is today.
Make sure that the amount is in writing and that it says in the paper that it will be approved by the VC in advance (otherwise the VC may have enough of the company to overrule the increase).

Answer 4

How can I deal with my CEO asking me to hire someone with a higher salary than me, a co-founder?

For better or worse,

There's only one simple two-way answer in the situation as described:

1. IF your 2% is now locked in and safe and in your hands (you've passed all cliffs, no dilution is possible, the "priority" bullshit is OK), then, just walk off.

2. IF your 2% is just theoretical (you might get it depending on blah blah) you're screwed. Write it off to experience, and walk off. (The CEO will by nature be a tough negotiator. He knows you're a soft negotiator so, he'll never give you any salary to speak of, so there's no hope of that.)

In situation 1. They'll soon realize they need you and, magically, the money will appear and you'll get a great salary. If they don't - so what? You can get a huge salary anywhere else by 2pm this afternoon. And you have the shares. So you've won.

In situation 2. There's no good outcome. You'll never actually get the 2%. (There'll always be some reason it's just out of reach for "another few years".) Unfortunately they know that you "have your heart in the product" which is equivalent to saying "can be ripped off to work for a low salary," so unfortunately they've got you there. I would honestly just forget the whole thing and move on. Again: you can get a huge salary anywhere else by 2pm this afternoon. You've got a great story for the grandkids about the "startup era".

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Important...

One huge point here: OP mentions a couple times "promises..." that have been made.

Sadly, when I was reading the question at first, I literally assumed OP was joking / being sarcastic.

Unfortunately: in business, when someone does the mouth-talk wordy thing, you just look at their lips moving, and then laugh.

It is absolutely essential to realize that in business words mean, simply, nothing.

Answer 5

Lots of good advice already regarding your personal situation, but one other big item stuck out at me:

However, I've gotten pressure from the CEO that we need to start hiring more developers to scale/show the VCs why we need the money.

This is 100% backwards. On what planet do you want to spend beyond your means in order to show a VC that you need money?

The object of the funding game is to have VCs invest in your company when you DO NOT need the money, otherwise they will recognize that the company is over a barrel and the terms will be worse.

I don't know how your company is structured, but it sounds like your CEO is out of his/her league and should probably be fired.

Answer 6

I've been in the exact same situation as you've been with one small difference: our company got bought by another company.

The new General Manager walked in and told us the exact same thing as you. I went to my buddy with the numbers though and told him:

Hey, look at what we're worth on the market. What do you think if we both walk into the new GMs office and demand 15% more than the people we're hiring?

We did and we got 12.5% (the GM was a sales person as well), so the advice I'm giving you is: do the same as we did and ask 20% more than the people you're hiring as you'll be leading them and need the confidence boost to be able to.

If he refuses, remind him you'll be glad to be hired for just 150% of his salary instead of the 200% he is used to give already...

If he refuses, walk both of you and tell him you'll both be taking a long-deserved holiday:

• off the grid for the next two weeks (turn off your phone and only turn it on when you need to make a call.)
• leave him the hotel address (Ensure they don't post post their phone number on their web site)
• ensure it's within 2 hours driving distance from the company HQ.

After 3 days he'll show up at your door.

Answer 7

Talk to the CEO, let them know what you're worth, especially let them know how far the company would be getting behind by having you leave.
Ask for a raise.
Put in your 2 weeks notice if you don't get it.

Think about what the company loses if it takes 2 additional years to get to market. Think about the the earnings potential with vs without you.
Essentially you're giving away hundreds of thousands of dollars of work right now. If you're OK with that you can keep doing what you do. If your passion is to get that product to market you should just stay.... The gist of the question seems to indicate otherwise though.

So regardless of what salary you're asking for, the company would likely make a huge mistake in letting you walk. That doesn't mean they won't, but it helps to be aware of it.

Answer 8

A promise of a raise is worth less than nothing. If they want to give you a raise, they give you a raise. If they don't want to give you a raise, they give you promises.

If you really want a raise, and are ready to leave if you don't get one, here's what you do: You start looking for employment elsewhere, and drop hints that you're doing exactly that.

Avoid outright telling them "I'll leave unless I get a raise", because ultimatums poison a relationship. If they realize you're looking for other work because you ask about references and take some random afternoons off for interviews, that does pretty much the same as the ultimatum does, but without poisoning the relationship.

Answer 9

Decide are you an employee or an owner

If you don't see much value in the company and in your 2% ownership, simply start looking for a better job. When you find it, give your two week notice, don't get into conflict with CEO or explain your reasons, work professionally through your notice period and simply leave.

If you consider your 2% as something that could potentially land you millions in the long run, then act as an owner. That means you must work much more then average employee and sometimes even without pay.

I won't give you advice about the value of your company, and value of your equity - this is a job for a trained professional, with all relevant information we don't have here. Instead, I advise you to seek one and get realistic assessment of your financial situation.

What you need to understand is that there is no middle way here : you would either leave the dead-end job, or you would work your ass off as partial owner of a promising company. If you decide to look for another job, most likely your current company would go under (as there is simply no time to train someone to take over from single senior developer), so take that into account when you make your move .

Answer 10

It's a very painful situation I have been through several times. You give all you have and someone else coming from nowhere is freshly hired, getting what you want from a long time.

Let start by the situation: there is a delta in how you value yourself and how your boss values you.

Let's take your point of view first: you have worked hard, you have given all the value you were able to give to your product and it worked. Your boss was able to raise money and now you are hiring high profiles, congratulations! Now it is more than normal to expect to have a piece of the profit.

On your boss' side: finally the boss was able to raise the company thanks to the employees (including you). After several years with no raise (if you consider than giving hope is not a form of payment), an employee (you) have done what you were paid for, why should the boss make the situation evolve? It's profitable right now.

Basically, your boss has hired you to do a specific work for a specific amount of money -- you have been paid and you have done the job, nothing wrong in that.

Now, you still have a job, you are asked to hire someone, you have to do it, you are paid for that. Moreover, you have conscientiously done your job for years. Nothing should prevent you from doing your best.

On your side, begin to look for new jobs, which are closer to the value you give to yourself. Either you want to stay (I fear the Sunk cost cognitive bias here) and it will be a negotiating lever, or you'll be able to realign your salary and your self-assigned value by accepting a new offer.

You might want to stay, hoping your boss will keep the promises made, or that your company will have a new board giving you more value. In this case, either you change your behavior, and how you bring value to the company (never work more, it's a ridiculous idea, if a strategy does not work, trying harder will not make it work), hoping that the change will be noticed and rewarded.

Or, you can put a meeting with your boss to setup a list of achievements you'll have to do in order to have a specific raise (have a precise number in mind).

Answer 11

Tell the CEO that you will be unable to take part in the hiring process for these new developers, as you will be applying for the new and better-paid role. (And if you think your second developer is sufficiently skilled to meet the brief, then privately encourage them to do the same)

There is a significant difference between hiring someone to do another job for twice your salary (e.g. hiring a new CEO) versus hiring someone to do your job (or a lesser-version of your job) for twice your salary. If you were purely management and trying to attract a skilled developer, then it might be reasonable - but in this case you will be doing the same work as the new hire, and potentially more if you are also supervising/managing them, and training them in your product.

Essentially, you need to point out that he wants to advertise a version of your job with less work plus more money - and as such you would be a fool not to take that opportunity for yourself. Since you say he comes from a Sales / Marketing background, he is hopefully familiar with the disastrous Hoover free flights promotion, and can accept that his "great idea" is actually going to backfire on him.

N.B. When considering this, do take into account whether your 2% equity is tied to you, or to your role in the company - would you retain that equity if you left the company or applied for a new job in the same company?