Salaries Level in '03 for Start-Up IT Execs

August 4, 2004 ( - Salaries for information technology executives at start- up technology firms plateaued in 2003.

The average base salary for IT executives leveled off with only a 1.9% increase last year. This is flat compared to the large year-to-year increases of the past and continues the downward trend from prior years, when base salary increased 2.9% in 2002 and 7.9% from 2000 to 2001, according to the 5 th annual IT compensation study released today by executive search firm J. Robert Scott, law firm Wilmer Cutler Pickering Hale and Dorr LLP, and Ernst & Young LLP.

Executives at these companies can now expect a greater portion of their total compensation to be based on performance, and as business improves, so too does certain areas of the total compensation picture. The average bonus across all positions and segments increased by 15.6%. Over the past four years, the percentage of bonus to cash compensation has steadily risen, to 21.9%, up from 15.7% in 2001 and 19.3% in 2002.

The study also found that nearly three-quarters of the companies surveyed used only stock options for time of hire grants. Both stock and options are used by 16% of firms while 3% use only stock. While other positions showed a decrease, average time of hire grants for non-founding CEOs increased in 2003 to 7.53% from 6.22% in 2002.

The increases were far from uniform, however, as salaries to executives at the high end of the pay scale increased more markedly. Those in the top quartile received average total cash compensation increases of 18%, notably for the CEO, COO and Head of Sales, each with a 27% jump in total cash.

Another difference was found in CEO compensation between earlier stage companies – those that have received two or fewer rounds of financing – and more established firms that have raised three or more rounds. For example, the CEOs at early stage firms earned an average of 17% less total cash than their counterparts at later stage companies. Total cash compensation for CEOs of companies with three or more rounds raised was $277,000 in 2003, 8.6% greater than the overall average CEO. As expected, however, as the number of financing rounds increases, the average equity position held by the CEO drops significantly. In earlier stage companies, non-founder CEOs hold an average of 8.77% of the company, compared to only 5.32% in more established companies with three or more rounds of financing.

“The conclusion from this year’s survey is that there are few if any ‘sweet’ deals being cut for top management of technology start-ups,” said Lapat. “Fair but modest salaries, coupled with greater upside potential tied to performance bonuses and equity continue to reward the industry’s top talent.”

The fifth annual IT Compensation survey was conducted between December 2003 and March 2004. More than 900 executives were surveyed across the country, representing senior executives from 170 private technology companies in five business segments: software; communications; hardware, semiconductors, electronics; IT services, consulting and integration; and content, information providers. The largest industry sector participating was software, representing 51% of respondents, followed by IT services/consulting and systems integration at 18%.