Base pay comprises as little as 37% of startup exec comp

Dive Brief:

While median executive compensation packages rose 8.5% to $325,000 in 2021 from the year earlier, many finance and other execs at younger startup firms still lack structural protections that are key to long-term financial security, according to a survey by Pavilion of 800 executives, mostly from venture capital-backed startup firms.
Executives in some of the cities with the highest total pay received a lower share of their compensation in guaranteed base salary, the study found. For example, executives in London on average received less than half (37%) of the typical pay of $781,000 as base salary, while those in New York, San Francisco and Boston received just over half (56%) of the typical pay of about $712,000 as base salary, according to the Pavilion 2022 Executive Compensation Report. Overall base salary typically comprises about 70% of a compensation package, according to Pavilion founder Sam Jacobs.
Executive benefits related to stock options slipped in 2021 from the prior year, with only 0.94% of respondents reporting having rights to sell stock in secondary rounds, down from 3.37% in 2020 and 1.41% having rights to purchase restricted stock options, down from 2.97%. But, the share of executives who pre-negotiated severance packages rose to 31% in 2021 from 23% in the year earlier, the study found.

Dive Insight:

When it comes to executive compensation for younger and growing companies there are signs that the pace of increased executive compensation is not sustainable in the wake of slowing venture capital funding for startup firms, the report states.

The report’s findings also showed that the percentage of compensation that is in effect guaranteed base salary varies greatly based on job function. For example, business development-related executives on average received 100% of their compensation in salary while base pay made up 64% of pay for those in revenue operations and just 56% for those in sales, where pay is traditionally more dependent on bonuses.

“What it comes down to is sales executives have lower guaranteed income in the traditional structure, which can create misalignment between their personal financial goals and those of the business,” Jacobs, founder and CEO of Pavilion, a private membership for high-growth leaders, wrote in an email. “If the entire executive team has the same stake in the business, and their ability to make money reflects that, they will be more aligned with each other and in reaching company objectives.”

The tight labor market continues to be among the major challenges facing CFOs and finance department executives as they seek to keep their companies running by expanding employee training, offering workplace flexibility and increasing both the amount and frequency of pay raises, a separate study from Willis Towers Watson recently found.