Startup CEOs, here are things to consider when deciding how much you should pay yourself

There’s been plenty of talks surrounding salary transparency for employees this year, and even a new minimum wage was recently gazetted by our government.

Yet, one question that seems to be left out from the conversation is how bosses who’ve founded their own companies determine how much to pay themselves.

They seem to be at the pillar of decision-making within the company. So, who determines the remuneration they deserve?

To gain insight, we interviewed Joachim Sebastian, the founder and CEO of Everpeaks. His business is an e-commerce service provider based in Malaysia helping brands grow globally on Amazon and eBay.

First things first

As a CEO, it is your responsibility to pay everyone, and you can only get paid after everyone else gets paid.

Being the CEO, founder, and majority shareholder of his company, Joachim thinks it doesn’t make sense for him to take resources from the company that are needed for it to grow. 

“In my position, because I can influence the board of directors (BOD), I can influence the allocation of resources, so I am comfortable taking a lower salary at the early stages of the company for it to grow,” he shared. 

To determine your own remuneration, Joachim suggests setting up a variable package that is tagged to the role’s KPIs.

It is advisable to also include a component between 30% to 50% which is fixed, while the other 50% can be flexible depending on the company’s performance.

Though there isn’t a prefixed number to the salary a CEO pays themselves, there is an industry range. Joachim elaborated that some may start at RM8,000 per month, and this number can go up to RM80,000 or more in public listed companies.

Generally, Joachim believes that keeping that number within the ‘teens tends to fall within a fair range.

Take these things into consideration

Depending on the size of your company and its average turnover rate, Joachim advised taking into consideration the business’s base level affordability and how much the company can afford to pay. 

“You need to do the right thing based on what your perimeters of decision-making are,” he said.

Ask yourself, “If my partner found out how much I’m being paid, is there going to be a problem?”

Sometimes, when it comes to determining your pay as a CEO, comparing your wage to those of your staff isn’t too necessary. This is because staff-level decision-making is very different from partner-level decision-making. 

“Partners invest and take risks, but it still falls back on are you being fair, are you making good decisions? Will your decisions bear scrutiny?”

A question of ethics

There are a few scenarios Joachim pointed out that would be considered an unethical remuneration for a CEO position.

One of them includes paying yourself so much that the company’s bottom line is compromised, leading to the business’s shutter.

As a CEO, knowing the company’s cash flow, along with profits and losses (P&L) is part of the job. “If you do not govern the P&L and cash flow decisions properly and you end up in a situation where the company goes bankrupt, it’s your fault, because you’re the CEO,” Joachim asserted. 

“So if you’re willing to take the fat paycheck that comes with being a CEO, you gotta take the fat responsibilities that come with it, and this is one of them.”

Another example is if a CEO takes a high amount of their salary without first paying their staff. “That, in my opinion, is an unacceptable position,” he said. 

Whenever the company is facing problems with cash flow, such as not being able to collect enough funds for the month, the first salary that gets cut should be the CEO, not the staff. 

Finally, changing your remuneration strategy without board or shareholder approval is another unethical thing to do. 

He added that CEO remunerations are typically done once a year. They are set based approved based on negotiations with all the highest authorities of the company. “If you manipulate that, that is not only unethical but it could be illegal as well,” Joachim pointed out.

When it’s time for a raise

So the company is doing well now, and you’re thinking about adjusting your remuneration.

Joachim shared that bringing this up to the BOD for discussion is valid, of course. But it is important to also be aware that the team has been well taken care of first. 

“It is important to know your value, what you bring to the table, and important to know what you can achieve with the company. These are things that contextualise what you should be paid,” Joachim justified. 

And in the end, if your company is doing well and you’re making hundreds of millions of Ringgit, everyone’s rewarded in the right way and what they’ve agreed upon in the company, then pay yourself what you want.

He concluded that at the end of the day, there’s no cap to what a CEO or founder can earn, but these positions mainly earn from the company they’ve built.

“So, build something awesome,” Joachim smiled.

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This interview was done as part of our ongoing Vulcan Post video series, Open Book.

You can watch Joachim’s video interview here:

Featured Image Credit: Joachim Sebastian, founder and CEO of Everpeaks