Hiring an Outside CEO for Your SaaS Startup: Salary and Equity
Considering bringing in an outside CEO to scale your SaaS business? Think carefully. Data shows most SaaS companies that IPO do so with their founder as CEO. Before hiring an outside CEO, explore strengthening your leadership team with experienced VPs.
Adding seasoned executives can often be a more effective solution than replacing the founder. An outside CEO isn't a guaranteed fix for growth challenges. However, if you decide to proceed, structuring their compensation correctly is crucial.
CEO Compensation: Salary, Equity, and Bonuses
Attracting and retaining a top-tier CEO requires a competitive compensation package. Here's a breakdown of key components:
Base Salary: A typical base salary for a post-Series A or Series B SaaS CEO ranges from $250k to $400k, increasing to $500k OTE (on-target earnings) for companies with $15M-$20M ARR.
Equity: Equity is the primary incentive for a CEO. Expect to offer 6-8% for early-stage companies, potentially 4-5% for mid-stage. This equity should vest over four years with a one-year cliff.
Performance Bonuses: Tie bonuses to measurable goals like ARR growth or Net Revenue Retention (NRR). For example, offer $50k-$100k for achieving specific milestones.
Stock Option Pool Expansion: The new CEO may require an expanded stock option pool (8-10%) to attract their own team.
Company Stage Considerations: Early-stage companies should prioritize equity over cash. Later-stage, cash-flow positive companies can offer higher salaries.
Aligning Incentives for Long-Term Success
The ideal compensation package motivates the CEO to drive exponential growth while ensuring long-term sustainability. A meaningful equity stake encourages them to think like an owner. Remember, an outside CEO may not have the same inherent product knowledge or passion as a founder.
Carefully weigh the decision and ensure it aligns with your company's needs and culture.
