Ask HN: Should CTO own company shares?
I am CTO in one small company for about 2 years (company was founded 5+ years ago). The salary is not competitive - maybe better paid senior developer position. And I am now struggling with my inner me - team is great and lot of interesting challenges, but building the company for someone else is ...demotivating. We had couple of great ideas and I even started working on those in my free time, but then it hits again "Should I really work on this new idea when it is owned by someone else?".
Does anyone have the same problem? Should C-level management own company shares? Or is it just my personal problem?
64 comments
[ 2.9 ms ] story [ 129 ms ] threadIn my unorthodox and unpopular opinion C-Levels should absolutely have shares but should have a longer vesting period than non C-Levels. This gives them the incentive to help the company prosper and could encourage more critical thought into longer term decisions and ramifications of said decisions.
An idea that I find interesting is that all employees get voting shares which convert to nonvoting when they quit. And for non-employees, only investors at key capital raising offerings get to get voting shares, which also converts to non-voting on sales of the shares.
There's no right or wrong answer what should or shouldn't be part of compensation, nor how much. 0% isn't any more or less "correct" than 2% or 0.2% or 20%.
If you don't like your compensation, negotiate harder. In your case, it sounds like you perceive the pay is already lower than you could get elsewhere, so there's not much of a trade to give. Basically, you believe you're worth a lot more than the company does, and also, it's personally important to you that you have equity in the company. That's fine. Either tell them that (and be ready to move on - there's probably not a satisfactory outcome), or simply accept that the parties disagree on how valuable this role is and move on.
I just want to add that OP should negotiate for the future and not get too hung up on trying to recover the past or think they are entitled to any equity appreciation they missed out on. Sticking too much to principle might just leave resentment lingering. While it is possible to negotiate to make up for the past I think there is more value in focusing on the future.
ie. Even if OP negotiated harder now, the equity is unlikely to be gifted to make up for the past. It may come in the form of vesting options but that will likely be structured to only gain value from the time of grant (now) onwards. That... or OP will get lower % equity than would have been received in the past. Knowing this, I think it is still better to correct it going forwards than worry about any missed appreciation.
NB: equity on small companies is often worthless anyway. There's no liquid market for it, so turning it into cash is often impossible or at a pretty arbitrary price.
And one last thought: @namelesscto should go get an offer. I'm not saying it's the case here, but I've found (as a person who hires engineers) that many engineers are optimistic about their market value. eg yes, engineers at google make a lot of money. However, most engineers aren't capable of getting a job at a faang. I've made a couple people pretty sad by bluntly telling them that if they want to earn a google salary, they should go work at google and I'll be bummed, but I'll help them transition out. Getting an offer will turn that market value from hypothetical to concrete, and will be informative both for @namelesscto and his/her boss.
Are you immediately replaceable? Does your work significantly increase the value of the company? Would losing you be a plausible trigger for the dissolution of the company?
Should you still be there in 5 years?
Your best bet is to make some political moves to make ownership happen for you. Otherwise, sounds like you're in for a ride that you're not necessarily the driver for.
I wouldn't take a position without equity as CTO or VP of Engineering or Director of Engineering or Manager or Tech Lead or SWE1.
• “What is the current market rate for a Chief Technical Officer (CTO) for a company of this size, in this industry, in this particular market?”
• “Can a company of this size, in this industry, in this market exist profitably without a discounted CTO?”
The first question you answer by doing a job search, and collecting samples of total compensation from other companies for comparison with what you’re getting now.
The second question is a bit of a jab on my part, but also worth thinking about: Why should a company exist if it can not generate enough revenue to pay its employees a competitive compensation package? Should employees extend a subsidy to the business through a wage discount? What to they get in exchange for the discount? (Edit: e.g. a stake of the upside via shares.)
Before,I worked as a developer (senior and teamlead) and when this opportunity came for even lower money than was my salary at that time I wanted to try it. Wanted to know if I am able to lead people at this level. Wanted to know if my experience can help that company.
I think (and also based on the feedback I got) everything is going well. Lot of problems were solved and many decisions comes as very good and effective (of course there were also many bad ones). But last couple of months I just cannot get rid of this bad feeling, that it is not as it should be...
It sounds like you've gotten out of this employment what you originally wanted. I think this is the point where you need a transparent conversation with the owners about your role, and your future. Make sure to structure it in a non-adversial way, and make it something along the lines of how you see all these possibilities of improvement that could yield great results for the company, and that you'd really like to work on it more than just the 9to5 to make it happen, but not having skin in the game to reap the full benefits of your work when it will inevitably bring in a lot of money is a mental drag that you'd like to get rid of.
Be prepared to talk numbers. Have an idea in your mind of what you're going after. Be prepared to have it negotiated as an options agreement. E.g., that you buy it with your money at some valuation. Be prepared that their offer may be insulting to you. Be prepared to move on in case it doesn't work out. This is really in a lot of ways about what kind of a relationship you have with the owner(s).
But we made the huge mistake of delegating legal solely to my co-founder. He secretly created a small equity pool for his "co-founders", and he secretly made it so the negotiated percentages we thought were fair only applied to the "pool" and not the whole company.
Nine months in, I discovered I was vesting ~0.3% per year. He took nearly all the equity for himself. Despite our agreement to be "co-founders", he suddenly told me he didn't know what the word meant at the time, and that actually he was the sole founder.
When I left due to this, my business partner told new investors there was never a CTO, then demanded in writing that I remove CTO from my website. This is despite him routinely putting in writing that I was CTO -- not to mention that I was responsible for all of our products, coding them largely myself.
Having this conversation 2 years later is not going to be easy. You have little leverage to get them to move on that front. Maybe if they refuse ask them for increased comp and start looking elsewhere.
Asking if he can buy in with cash seems straight forward - getting shares "just because he works there" not possible.
huh? how come?
Whether you make the difference up in equity, cash or something else is up to you but generally you could consider equity or some cash performance/bonus option.
From my point of view - if someone hires CxO employee - deal is that they have to buy into company with money and company has to sell them shares.
Vesting and compensation is for engineering employees.
If you are not founder having shares and you did not buy shares on joining - you are not CTO they are bullshitting you, full stop.
You are just engineering manager at best. As not being shareholder is equal to not having any executive power in the company.
So only wealthy people can become CxO? Or is buying $1 worth of shares enough in your opinion?
Just stop.
Private companies even if you are loaded won't simply sell you shares because you "want".
Read up on hostile takeovers.
Having shares in a company is not some fun and games. (Unless you are really frikin loaded that you don't care about money anyway)
Being senior officer like CTO has real consequences like really getting sued and going to jail.
Having shares in a company is not "being rich quick fix" because companies can go bankrupt and not every company is "going to the moon".
You can negotiate and provide a counter-offer, but be prepared to be rejected, possibly fired or placed in an uncomfortable position.
Unless you have a good relationship with the owner (sounds like you may not, otherwise you would have more confidence in your potential where you are) and can enter into a good faith improvement of your compensation package, you're better off learning more about your market value and finding a new position. Doesn't have to be an immediate change.
That being said, if equity isn't an option and you feel you are underpaid, then ask for a raise. As a key employee at my company I knew I wasn't going to get equity and negotiated a ridiculous salary. I don't think about equity anymore.
But if I found out and I was working for you, I might question how much you care about making the company successful. You've already said the salary is not competitive, so without equity; you can easily pick up and leave as soon as you find a better role. Maybe reading the comments in this thread will even make you realize this; you could be at a new job in less than a month.
I think I can say this isn't just "your" problem - you've stated the situation is demotivating and you are not giving it all as CTO; passing over "great ideas". Being unmotivated at work is a personal problem if it bothers you. Passing over great ideas or changing jobs is a shareholder problem, but that doesn't include you. It would potentially be something to bring up to shareholders especially if you are prepared to leave over it.
However, what you need to do is to go talk to the founder(s). If you feel strongly, make a case for it. As a founder myself, I have higher standards for someone who wants equity (just the nature of the beast). Doesn't mean I now expect you to work weekends but for anything significant (>5%), you do need to make a case on why and it may mean thinking about the company more than you do currently. Just being honest.
The most important question to answer is: Why do you want equity ? Do you want it because you feel that you are entitled to profits that you help generate with tech or do you actually really like the company/product and want a long term commitment to see the company grow further and want to be part of the reward that comes with it ? 2 different things. As a founder, it is critical for me to understand the "why". If it is the latter and founders are smart, they should see and value it. If they don't, they are telling you that you are easily replaceable or they don't value you enough to give you equity. Then you will have to make a call.