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

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Expert Witness

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Passion and Purpose

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• 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

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Pay in Public Companies is All Messed Up

Because of…

• Activists

• Consultants

• Media

• Wall Street

• Government

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Pay is…

• Short-term Focused

• Complex

• Homogenous

• Compliance-focused

• Targeted by populists

• Increasingly regulated

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The Prevailing Performance Measure: TSR

• Stock price growth

Plus

• Dividends (Reinvested)

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Why? Exclusive Focus on One Stakeholder Group

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To Increase TSR You Can Take Money from Others

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Or, Optimize Value for All Stakeholders, and Share

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• This is Conscious Compensation©

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Pay at Startups Used to Look Like This

• Base Salary

• Stock Options

• Lean Benefits

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Realizing Good (or Better) Pay Required a Transaction

• IPO

• Acquisition

• Restructuring

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

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Pay at Startups is Homogenous Due to the Financing Cycle

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InvestorsFounders

Board Members

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Financing

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Founders

InvestorsBoardMembers

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Growing Up

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Founders Investors

BoardMembersBoards of

Private Companies

Boards of Public

Companies

Boards of Venture

Companies

Boards of Other

Companies

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Now Compensation Discussions Turn To…

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• 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

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Finding a Balance: Capitalism and Social Impact

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Traditional Capitalist

Compensation

ConsciousCompensation©

Socially/PoliticallyCorrect

Compensation

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Referencing the Model of Conscious Capitalism

Transcend profit maximization

Create stakeholder engagement

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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

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Very Difficult to Do in Larger Companies

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Founders

VentureInvestors

BoardMembers

ProxyAdvisers

Institutional Investors

SEC

Media

Peer Companies

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So We’re Focusing on Other Kinds of Companies

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Who Can Grow into a Larger Social Impact Company

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It Starts with Some Fundamental Decisions

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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

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Then the Decisions Keep Coming, and Getting Harder…

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