CEO Compensation: What CEOs Make

Eight CEOs reveal how much they are earning, and what their challenges are.

Tweet

How do you fill in the numbers on your own paycheck? Do company needs overwhelm personal financial goals? Who helps you figure out what would constitute a 'fair and reasonable' -- or maybe just practical -- CEO compensation package? Here's what a handful of company builders revealed about this trickiest of managerial questions

People who start their own companies say they do it because they love the challenge of building a business. Less often do they admit they want to get rich. But let's face it, you don't put yourself through hell just to feed the soul. Moreover, it's well documented that the time-tested way to lasting wealth in America is to start your own company. Do it right and you get the lion's share of what your company earns. Do it really right and you build up some impressive equity that could one day turn into a goodly chunk of cash.

But even if your company takes off, the issue of how much you should pay yourself will not go away. What is "fair" or "reasonable" when you sign your own paycheck? Money often becomes a charged issue within capital-hungry fast-growing companies, in which cash can seem so scarce to founders -- and so abundant to their hardworking employees. To further cloud the issue, there seem to be few norms or guidelines when it comes to how much money an entrepreneur should be making. That was made clear by a recent poll of CEOs of companies that have made the Inc. 500 list of the fastest-growing private companies in the past five years. Of the 496 companies that responded, 85% were profitable, 46% considered themselves "professionally managed," and one-third foresaw a public offering. And yet 50% of the CEOs queried consulted no one in determining their compensation.

Although CEO compensation in many small companies may be a freelance affair, Inc.'s survey does not imply that those at the helm operate without a plan -- however fluid it might be. The heart of that plan typically involves growing the company, not cutting as fat a paycheck as possible. Eighty percent of respondents said that the company's needs were a major factor in determining their level of compensation, and 39% deemed their compensation below what the market would pay. (Another 37% saw their compensation as "about right.")

Another finding of our survey was the close link between compensation and company performance, with 71% of CEOs noting a pay-for-performance link. That mirrors a strong national trend. Sixty-six percent of the CEOs said that a bonus made up some part of their compensation last year; one-third said that a bonus constituted at least 25% of their pay. That finding is perhaps not surprising, since with this group, growing the company often is the prime motivation, which, in effect, means growing the value of the company. And that is where most CEOs see the ultimate payoff. Forty percent of the respondents owned at least 80% of the equity in their companies. Sixty-nine percent owned at least 50% of the equity.

Although CEO compensation cannot be considered in a vacuum, there is no "right" answer when it comes to what is fair pay. Still, the owner must sign his or her own paycheck, an act that presents specific practical challenges as well as emotional concerns. Following, then, are portraits of nine company builders, glimpsed through the prism of compensation. We asked these CEOs what they paid themselves in 1994 -- and why. Most have developed their own systems and rationales rather than looking to highly regarded texts or highly paid consultants. But reasonable compensation is more than just common sense. It inevitably becomes a piece of the larger puzzle of running and growing a business.

Chris Nowak
$72,000

Age: 41

Position: President,

Rocky Mountain Motorworks Inc., Woodland Park, Colo.

1994 financials: $5 million in revenues; profitable

Equity ownership: 100%

Number of employees: 45

Business founded: 1986

Challenge: To hire top managers at going rates

For years Chris Nowak, the founder of Rocky Mountain Motorworks Inc., a distributor of Volkswagen parts and accessories, drove a beat-up VW bug and lived in little more than a hovel. Nowak, who was once a premed student majoring in microbiology, recalls a visit from his parents in the early days of his company. They came, they saw, they left in tears. Their son the doctor was not to be.

Nowak, as it turned out, was married to his business -- and still is. (His wife has known her share of anguish when it comes to being a growth-company widow.) Nowak has always fed the company first. "If I have extra cash, I lend it to the business," he says. "If the company died, I'd probably be right behind it."

Nowak has always been able to keep things lean and simple, because his devotion to the business has always been so pure -- and because he believes his ultimate reward will come from building equity in his company. Currently, he pays himself $72,000, a sum he considers generous, even though his company this year will generate about $7.5 million in revenues, a 50% jump from last year's figure. (Until a few years ago Nowak paid his chief financial officer all of $30,000.) Nowak bases his pay simply on his living expenses.

 1 | 2 | 3 | 4 | 5 | 6  NEXT 

Read more:

Sign-up for our Finance Newsletter

Email Address: