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?
You'll mostly get altruistic and/or theoretical answers, like that all employees should have equity on principle, execs should on principle, or that it motivates execs to deliver results. I'll give you a practical answer: it's a compensation agreement.
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.
Agree completely. I like the point on disagreement of value and OP should be prepared to 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.
Also, the post sounds like namelesscto wants a referee to tell his/her boss that he/she is wrong which... that isn't how anything works.
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.
I really like this take. There are moralistic arguments to be made when it comes to compensation, and I personally have my own viewpoints on what is fair that are rooted in morality, but at the end of the day for the sorts of high-demand, high compensation tech roles that we're usually talking about it's 100% a contractual agreement. It's like selling a car – the price is whatever you can get for it.
I think you already know the answer because of the way you're asking the question. If you think you're underpaid on a salary basis and you don't have any large compensatory benefits like equity it just follows that you're underpaid.
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.
Without a shadow of a doubt, if you are a C level employee, you should have equity. Full stop.
As a counter to some of the responses here, I would wager that in most small companies, zero employees have equity. Experiences from people on this forum are probably skewed, for obvious reasons.
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.
As others have said... company ownership perspectives are subjective.
My opinion is that all C-level execs should have a piece of the company that vests over time. Ownership should be proportional to impact on the growth/bottom line of the company. In a technology organization, the CTO role has a large impact on the company's present & future.
I have seen a lot of bad behavior from small business owners and start-up founders where they behave in a very miserly fashion with respect to equity for critical employees. Sometimes, key employees just allow themselves to be used... in other cases, key employees leave and it severely harms the company. I think this is something that every owner/founder needs to really spend some introspective time on... being greedy as an owner/founder is understandable but greed can harm your long term interests.
As an employee, the key factor with negotiating equity is understanding your realistic "value over replacement". If an owner/founder believes they can replace your contribution, at or close to your level of compensation, they have little impetus to compensate you better and your request will fall on deaf ears. If you are vital to the company and your owner/founder will rapidly be "up shit creek without a paddle" if you leave... then you are definitely in a situation where you deserve part of the company. Your owner/founder may not agree with you, of course.
Using market rate arguments, and the like, seldom works in practice. Your particular situation is unique. That CTO's almost always have equity is certainly in your favor... and means your request for appropriate equity is not crazy and really should be expected.
Your question is stated like you would expect to get shares as a compensation.
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.
> 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.
So only wealthy people can become CxO? Or is buying $1 worth of shares enough in your opinion?
It is not about being privileged.
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".
Maybe an alternative view is that time is money, and your time and talents in the C-suite can be "sold" for shares.
Give people a signing bonus and a matching stock offer. Problem solved :)
The flip side to this question is, how did you get in a position, as someone capable of being CTO, to not have any shares in the company from the start? And the answer is probably that it's your first time as CTO, because I don't see any other answer than that to this situation.
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.
Loads of small companies will give out titles like CTO when the position is like what OP said, a "better paid senior developer position". Honestly that is all this position is, a bit higher rank senior developer position. It's more likely his role is manager.
This is how it smells to me.
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.
You have to ask yourself, if titles weren't involved, what is your role at the company. Are you really steering the direction of the company? Do you have actual monetary investment into the company?
-OR- are you really just a manager of an IT department?
Small companies are notorious for over inflated job titles. I suspect you're not as much CTO as you are manager of the IT department.
I don't see you getting any sort of equity unless you are bringing something important to the table, like cash or an existing product.
The company is compensating you for your work and ideas. Only you can decide if their compensation is fair. If you don't feel that it is, which it's plain to see that you do not, then negotiate with them or leave for better pay.
I’m really interested to hear the story of joining a company as a CTO on a below-market salary and no shares.
I had the same thing happen. My business partner and I left our jobs simultaneously to go all-in as CEO/CTO, pre-funding. We jointly agreed we were "co-founders", exchanged in writing what I believed was a fair cap table, agreed in writing I held the most shares of anyone, and we each agreed to take only $30K/year after funding.
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.
Someone already mentioned it: it is my first time as CTO. I had experience with startups before - worked on couple of projects (some of them are in production, some of them not), tried to find investor(s), met a lot of people, had a lot of discussions, etc.
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...
So, you joined, found out that you can do this, now you have CTO of a small company on your resume. Which does mean something.
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).
Should CTO own company shares?
In 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.
It's all a negotiation. However, most companies give C-level management some equity to align incentives. If you're not very important to the company (the CTO of a mom-and-pop grocery store is a very different position than the CTO of a tech startup), they may not need to give you equity to get adequate work from you. This is up to you, and you can always leave if you aren't happy with your compensation and contract terms. The threat of you leaving can always spark a re-negotiation.
In small tech companies, everyone who contributes to long-term success and is not immediately replaceable should have some ownership.
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?
Technically, you should have gotten shares in the company when they hired you.
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.
"Gotten shares" - well it is not like he should get shares for free when they hired him. He should buy into company with money and they should offer him decent price.
Asking if he can buy in with cash seems straight forward - getting shares "just because he works there" not possible.
> Asking if he can buy in with cash seems straight forward - getting shares "just because he works there" not possible.
huh? how come?
More likely there should have been an options agreement available, but that only makes sense if you're building a business for an exit. There are a lot of private businesses that do not give any equity to employees, even at senior levels.
How small is the company ? If it is under 50 people and lets say you leave, will it go through a tough time to run the tech. operations without you ? Anyone can be replaced technically but at what cost. If the answer is that shit will hit the fan and the founder(s) really want you on board, then you should get some skin in the game other than salary/benefits.
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.
It sounds like the issues may be deeper than equity.
"The salary is not competitive" hints that you may not be happy with your compensation across the board.
Don't look at equity any different than cash. It's a more complicated asset, as there is less certainty about its future value compared to the dollar -- but at the end of the day it's compensation, just like cash.
If you aren't happy and motivated by your compensation you should negotiate harder or find a new role. Your career and this startup will both be better off for it.
Sounds like it is time for you to move on. The answer to your question probably has to do with how the company is structured. If you work for a person or persons that are personally funding the company and it looks like a small business then there may be no shares for you, it may be just an agreement between partners. If you work for a 'startup' that sold shares to private investors then there should be shares for you, and probably shares for everyone. Depends on how the company is structured.
I am shocked this is a question to be honest. If you are executive leadership you should have negotiated significant equity when you were hired.
Downplaying happens often but that usually is in the form of the CTO getting X shares and the CEO getting 4X not the CTO getting 0.
Even if you are in an established company (think fortune 100) you should still be getting shares. At a small company it should be more.
To put it from a business perspective, the C-Suite should be highly incentivizes to move the needle and to do that, their compensation needs to be tied at least partially to the company outcome. Even if you make market salary (which it sounds like you don't).
With that said, if the company is established, has a product that is already built and is just in maintenance, or technical projects are not core to the company's business model that compensation goes down proportionate to the risk. If the company is already established the risk is lower for you.
I've had this conversation with a lot of people and this is honestly the first time I've heard "zero" for a CxO positional.
Perhaps you should ask yourself is your job role one that is strategic and your decisions make a long term impact on the company. If the answer is "no" you might actually just be a principal software engineer with a fancy job title.
Edit: To add to that last part. And this will be tough to hear. The CTO is at least partially a business and political role. If you need to ask this question and you didn't negotiate equity, you may be punching above your weight class. Not necessarily a bad thing. Sometimes that is an effective way to get ahead. But I would recommend taking some business and management classes if you haven't already.
We are a tech company and there is no one else in the C-level with technical knowledge, meaning every tech decision is my decision.
As someone pointed out, every single tech decision for a grocery store is different than every single tech decision for a SaaS.
But in any case, you should be negotiating equity. Full stop. Zero is too little. The correct amount is dependent on a bunch of factors I can't see.
In negotiating you may want to consider performance based bonuses or a longer vesting schedule as ways to soften it to be more palatable to them. Make sure to also understand the difference between ISO and RSO options and also strike price before you start negotiating.
Also, don't go into this particular negotiations unless you are prepared to leave (either voluntarily or by them pushing you out). It's not likely if you handle the negotiation well but something you need to be aware is a possibility.
The decision to negotiate, or stay with the status quo, or just leave is a deeply personally one so I can't offer any advice there.
Good luck.
Edit: Not how I would have put it but the peer comment in this thread has a valid point:
> It also won't make others who have shares in company to think twice to fire you if you stand up.
That does not make you C-level, sorry.
That is reality - you are IT manager tops.
It also won't make others who have shares in company to think twice to fire you if you stand up.
They will expect to hire another sucker.
I guess it depends on the company culture a bit (do people under you have equity?), and it seems like you want equity as opposed to choosing a higher salary with no skin in the game, so that helps.
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.
All permanent employees should own a share of the company's profits in proportion with their contribution as decided by their peers.
The problem is how do we actually implement this? For example you used the word "profit", but what if the best move for the company during a period is to reinvest profits and then contributor x leaves having contributed significantly to growth (but little profits).
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.
I would ask two questions:
• “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.)
Some of the answer to your question is also a factor of whether you can get another job for more money or better compensation. If not, you've maxed out your market potential where you are and based on what you are capable of "pulling".
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.
I wonder what the difference is between a CTO's relationship with the company they are building the tech for, and a civil engineer/architect/foreman's relationship with the company they are constructing a building for...
Maybe the CTO never stops building? Is that enough of a difference for why the average CTO has stock options and (I presume) the architect/civil engineer/foreman etc doesn't have stock in the company that hired them?
Both involve organizing massive amounts of human labour and resources over years and building something the company is dependant upon to succeed and function.
Why are you doing this job at all?
You said your salary isn't competitive and you have no equity. I can't imagine why you'd even want to be there. Usually underpaid C-level are there on the promise of a big return on equity, but you don't have that carrot. So, why is this even a question? Go make more money and/or find a company you can own a stake in.
(no disrespect meant. I just can't comprehend what would make you want to take this job in the first place or stay at this point)
From OP post:
> ...team is great and lot of interesting challenges...
A great team and exciting challenges are a strong retaining factor, and I dare to say, it's way harder to find a job that excites you than one which pays well.
Perhaps unpopular opinion, but I think unless you had original risk/skin in the game, you shouldn't have any shares - but should have fair market compensation salary wise. If you didn't put in sweat equity, or actual equity back when a return, or even the early survival of the company was not guaranteed - you are an employee, not an investor/founder - and should be compensated as such.
I think an ESPP is a reasonable compromise, but not sure how that works when you're not in the public market, I've not worked for a startup. Want equity outside of what was offered when you were hired? Put your money where your mouth is if you believe this company will be worth something.
Ah - yes agreed. I'm into that.
Imo, every employee should be getting shares. We can have a discussion about whether the founder should have more shares (imo, no, every person should have an equal stake), but at the very least everyone should have some.
Having 0 shares is, imo, objectively wrong. You are making decisions that impact the future of the company, you should have some stake in how those decisions play out.
Depends on how important a CTO is to the company - this varies based on industry/nature of the dev process. If you're someone who's working on problems in your free time/ownership mentality it sounds like equity comp is important to you. Might be worth addressing to C-suite and finding patterns in your industry for benchmarking before that discussion.
It’s very much an agreement on compensation. Most of the time we trade salary for equity early on. Looks like you are late in the game so typically expect less. With vesting schedule it’s also a way to make sure you retain talent. I would ask myself what value do I bring to the table? Am I easily replaceable?
Have you had a discussion with the founders?
Yes, a CTO should always own shares to prevent a conflict of interest. Otherwise, there's an incentive to book overly expensive services from friends to funnel money out of the company before it becomes profit.
I've not met a CTO that does not own shares in the company.
stock options vesting is specifically designed for this, whoever brings value to the business should have them. job title is not important, value is what matters.
a 1-5% equity (varies widely) for early stage startups (seed or angel) is common practice to negotiate commitment.
if your company do not want to negotiate this and you provide value just get a second job as a consultant.
Your startup has a non-zero chance of failure. There are upsides to being compensated in cash, rather than stock.
I cannot imagine working as a CTO w/out equity unless the comp is stellar.
Perhaps you (unknowingly) are CTO in name only?
Are you sure that are you properly including your opportunity costs in the ponderation of your negotiations?
It's possible that the value you bring is not that of a CTO, but rather of a senior developer.
Not only CTO but the level below them should probably too, if your intention is to keep them.
Yes, of course the CTO should have stock. In all cases. Unconditionally.
fractional executives are all the rage these days, it could be fun to try and convince them that they're only paying you for part-time
Don't do it for free.
Yes.