Most founders I’ve met assume that the CEO gets the highest salary, after all isn’t that the way it is in all companies? Now he or she may not get the most equity, depending if the CEO is a founder or brought in later. But that’s a totally separate issue. We are talking cash compensation here, not options or restricted stock grants.
But as a VC at one of the top VC firms explained to me, “The highest compensated person at your company should be your VP of Sales.” And before I could even ask “why?” he explained: sales execs are compensated largely by incentives based on meeting or exceeding their sales goals. So if your VP of Sales is making a lot of money that means what? That the company is generating a lot of revenue and it is increasing in value! That’s what any CEO or founder should want.
Related words of wisdom relate to capping a VP of Sales or other sales execs upside. Entrepreneurs tend to do this because they don’t have faith in their financial projections. Bad idea! The best sales execs don’t want their upside capped. So hunker down and make sure your financial projections are tight and you’ll be glad, not sad, when your sales VP knocks it out of the park and you have to pay a beyond forecast sales bonus.
Just make sure you are paying for real sales, not bookings. You always want expenses to trail revenues. So get those orders in the bank before paying sales bonuses. On the other hand making sales people wait until the end of the year can have a negative impact on their motivation, so work with your CFO on what makes sense for your company in terms of when sales bonuses are paid.