Paying People at Impact Startups

© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.

Conscious Compensation®:Paying People at Impact Startups

The Impact HUBSeattle

30-May-2013

Compensation Venture Group, Inc.www.compensationventuregroup.comfred@compensationventuregroup.com

© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.© Copyright 2011. Compensation Venture Group, Inc. All rights reserved.

Compensation Venture Group

Equity Interests andAdvisory Roles

Professional Roles

Online Content

Pay and Performance: The Compensation Blog

Conscious Compensation: The Impact Compensation Blog

Effective Equity: The Equity Compensation Blog

Compensation

Consulting

2

Expert Witness

© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.

Passion and Purpose

3

• Find ways to allocate an organization’s financial capital…

• To its human capital…

• Based on creating success for all stakeholder groups…

• Over an extended time period…

• Increasing the economic benefits for all stakeholders…

• To enable the organization to find and engage the right people to fulfill the mission, purpose, and business objectives


Pay in Public Companies is All Messed Up

Because of…

• Activists

• Consultants

• Media

• Wall Street

• Government

4

Pay is…

• Short-term Focused

• Complex

• Homogenous

• Compliance-focused

• Targeted by populists

• Increasingly regulated


The Prevailing Performance Measure: TSR

• Stock price growth

Plus

• Dividends (Reinvested)

5

Why? Exclusive Focus on One Stakeholder Group


To Increase TSR You Can Take Money from Others

6


Or, Optimize Value for All Stakeholders, and Share

7

• This is Conscious Compensation©


Pay at Startups Used to Look Like This

• Base Salary

• Stock Options

• Lean Benefits

8


Realizing Good (or Better) Pay Required a Transaction

• IPO

• Acquisition

• Restructuring

9

But what if you want to build a sustainable company and not liquidate?


Pay at Startups is Homogenous Due to the Financing Cycle

10

InvestorsFounders

Board Members


Financing

11

Founders

InvestorsBoardMembers


Growing Up

12

Founders Investors

BoardMembersBoards of

Private Companies

Boards of Public

Companies

Boards of Venture

Companies

Boards of Other

Companies


Now Compensation Discussions Turn To…

13

• Timeline for return to (liquidity for) investors

• Conformity with market norms = less innovation

• Burn rate (dilution) = less sharing of ownership with employees

• Exit strategy focus = public company norms for pay

• Formalization of pay processes = less discretion

• Risk management = decisions driven by avoiding litigation


Finding a Balance: Capitalism and Social Impact

14

Traditional Capitalist

Compensation

ConsciousCompensation©

Socially/PoliticallyCorrect

Compensation


Referencing the Model of Conscious Capitalism

Transcend profit maximization

Create stakeholder engagement

15

Source: Conscious Capitalism

Managed for simultaneous benefit of stakeholders

Create value for all stakeholders

Multiple constituencies

Profit important, not sole purpose

Trust Authenticity Caring Transparency Integrity Learning Empowerment


Very Difficult to Do in Larger Companies

16

Founders

VentureInvestors

BoardMembers

ProxyAdvisers

Institutional Investors

SEC

Media

Peer Companies


So We’re Focusing on Other Kinds of Companies

17

http://fledge.co/fledglings/summer-2012

http://fledge.co/fledglings/winter-2013/


Who Can Grow into a Larger Social Impact Company

18


It Starts with Some Fundamental Decisions

19

Form of Organization

C Corp

S Corp

LLC

Value SharingStay Closely

Held= Compensation +

Dividends

Broad Ownership

with Interim Liquidity

Broad Ownership with

Transaction-Contingencies

Equity Compensation Alternatives

Partner-

ship

SoleProprieto

r


Then the Decisions Keep Coming, and Getting Harder…

20

Paying People at Impact Startups

Documents

Transcript of Paying People at Impact Startups