Because you’re worth it: Why startup founders should pay themselves

Key points at a glance

  • For decades, many of the world’s most successful technology executives have taken symbolically small salaries.
  • These miniscule monetary rewards risk creating cultural mindsets that might be unsustainable for early stage startups.
  • Rather than sacrifice their salary, founders could be better off offsetting wages through a government grant such as the R&D Tax Incentive.

It’s a surprising historical footnote: shortly after returning to Apple in the mid-1990s, co-founder Steve Jobs became a holder of a Guinness World Record. Was it for the largest collection of black turtlenecks? No – Jobs earned the title of World’s Lowest Paid CEOa, signing on for only a single dollar in annual salary.

Other technology executives followed suit, with the heads of Hewlett-Packard, Yahoo, Google, Facebook, Tesla and WhatsApp all choosing to become modern-day ‘dollar-a-year’b men and women, opting for the very minimal in cash compensation.

Is venture its own reward?

It’s tempting to see such salary sacrifices as grand altruistic overtures, painting a picture of visionary leaders nobly foregoing monetary gain to focus on the success of their enterprise. But while such actions generate positive headlines for these entrepreneurs and their companies, these diminutive paychecks are problematic.

It’s extremely likely that each of these executives received hefty remuneration through other means, whether through cash bonuses or considerable stock and equity holdings. Such compensation packages are frequently worth millions – if not billions – of dollars.

More broadly, having so many iconic entrepreneurs refuse cash salaries creates a cultural mindset that filters down to all levels of the business world – including the myriad startups scattered throughout the globe. For the founders of these fledgling companies, the temptation is to do as these CEOs do: sacrifice a liveable wage to minimise burn rates and keep the company coffers as full as possible.

More money, less problems

While a symbolically low salary might make logical sense for a founder still possessing a significant ownership stake in their startup, the gesture can put unrealistic pressure and performance expectations on the company’s other team members or stakeholders who do, in fact, need to be paid a fair wage.

Additionally, a range of government grants or incentives might be available that render the whole exercise unnecessary. In Australia, startup founders engaged in meaningful research and development activities can opt to have a significant portion of their salary – up to 45% - reimbursed through the R&D Tax Incentive. These refunds can then be funnelled back into the company, providing crucial additional runway or cash reserves.

Take the money and run (the company)

It’s unlikely that the mythical $1 pay check will ever fall out of fashion in the corporate world. However, with the aid of grants such as the R&D Tax Incentive, it needn’t be the default modus operandi for innovative Australian startups.

With up to 45% of R&D-focused salaries able to be returned, even founders and CEOs can accrue a fair wage for a fair day’s work.

Is your startup eligible for the R&D Tax Incentive? Backed by PwC Australia, use Nifty R&D check your eligibility status online, free of charge.

a https://www.wired.com/2007/11/steve-jobs-may/
b http://www.encyclopedia.com/history/dictionaries-thesauruses-pictures-and-press-releases/dollar-year-man