What’s the Right Compensation for Life Science Startup CEOs?
Finding compensation benchmarks for startup CEOs is a tricky business. When we were conducting research into standards and trends regarding cash and equity compensation for early-stage life science and biotech CEOs, we discovered that most of the data is buried in gated — and very expensive — reports. That leaves startups flying blind or making apples-to-oranges comparisons with public company compensation salaries.
Figuring out how to compensate first-time founders and CEOs is a balancing act. You want to hire and retain the best talent, and reward them for performance. At the same time, you need to keep a close eye on cash and be able to justify your payroll and equity incentive plan to your investors and your board. So, how do you juggle these priorities?
Here are some best practices:
1. Dig up some benchmarks. The Kruze Consulting 2019 Startup CEO Salary Report includes data from over 200 seed and venture-backed companies, including information on the average salaries of seed stage startup CEOs across industries:
Of course, talking to your peers and mentors is another way to get some benchmarking data.
2. Factor in your funding stage. The amount of capital raised impacts startup CEO compensation. According to the Kruze Consulting report, here is how average CEO salary scaled based on total fundraising:
3. Consider past experience. Many of the first-time life science startup CEOs we have seen have come from senior-level positions in large closely-held or publicly-traded companies and, regardless of their level of enthusiasm, their experience doesn’t always translate to the startup world. Every first-time life science startup CEO is going to be climbing a steep learning curve in the school of hard knocks…at a discount.
4. Pair cash compensation with a clear equity strategy. In the seed stage, determining compensation may be more art than science. When you’re just getting started, the folks who jump on board are likely more driven by the vision than the salary. Equity makes up the difference. The most important thing to remember here is that percentage equity for founding CEOs is quite different than for non-founding CEOs. This data from Pitchbook and J. Thelander Consulting shows that, while non-founding CEOs tend to earn more cash than founding CEOs across all stages of financing, median equity for venture-backed non-founding CEOs hovers at around 5% regardless of capital raised.
5. Convene a compensation committee. It may seem silly or inconvenient to have a compensation committee when your company is still so small, but this adds objectivity and accountability to the exercise. Including a disinterested outsider on the committee can make it easier to justify compensation packages to your investors and your board.
For some additional compensation benchmarks:
· Get the BioSpace 2020 U.S. Life Sciences Salary Report, which was based on a survey fielded prior to the COVID-19 public health emergency. The company mix (public vs. private and stage) isn’t specified, but there is some alarming data on the widening gender gap.
· Participate in the 2021 Thelander Private Company Compensation Survey and receive access to exclusive compensation data on the Thelander platform.
Written By June Chen, M.D.