Competition for Managers Pushes Up Web Salaries
Corporate executives who leap to Internet start-ups in search of the big stock payoff increasingly are taking home fat paychecks too.
Competition for experienced managers is pushing up salaries at new-media firms in Los Angeles, where a pile of potentially valuable stock options is no longer enough to attract top talent.
Salaries for chief executives and other high-ranking positions jumped 25% in 1999 and are expected to swell an additional 20% this year, according to a survey released today by the Santa Monica recruitment firm of CFour Partners and the Los Angeles Regional Technology Alliance. Pay levels are approaching those in New York or Silicon Valley, where new-media executives typically earn more, experts said.
CEOs at Los Angeles-area start-ups earned $200,000 to $300,000 in 1999 and received an equity stake of 5% to 7%, the survey said. Top financial, marketing, sales and technology executives earned upward of $125,000 and received 1% or more of the company.
Pay levels reflect a shortage of managers to run any of the Internet companies cropping up in Los Angeles as the region emerges as a new-media center. More often than not, recruiters say, a bidding war breaks out for seasoned professionals who walk away with generous salaries and stock option packages that allow them to cash out early.
“I have a presidency search underway, and the offer on the table is $500,000,” said CFour Partners director Robert W. Bellano, who declined to provide more details. “I just completed a vice president of marketing in the $250,000 range. This is the kind of distortion you are seeing in the market.”
The salary levels also reflect the premium investors put on management talent capable of quickly leading a company through the start-up phase to an IPO. Venture capitalists are willing to throw money at executives with skills needed to get a company up and running ahead of other Internet outfits pursuing the same idea.
Recruitment experts said that is a sea change from a decade ago, when the business concept or technology was paramount to investors.
“Today, it is about getting the work done quickly,” said David Mather, managing director of Christian & Timbers in Silicon Valley. “An increment of $20,000, $50,000 or $100,000 in some cases is what you pay to get that resource on that team who will take the company to market fastest and increase value overall.”
Recruiters say salaries in Los Angeles are closing in on other digital media centers as entertainment becomes more important to an industry previously focused on technology or transactions. Salaries in Los Angeles typically have lagged those in Silicon Valley and New York, where competition for new-media talent is greater and living costs are higher.
But the growing appetite for online content--music, video, games and information--is making it easier to attract talent to Los Angeles, the nation’s entertainment capital. Between 30% and 50% of executives hired by Los Angeles-area start-ups came from outside Southern California, according to the survey, a sign that the region is no longer viewed as a new-media backwater.
In one disappointing finding, the survey found that about 20% of executives recruited from outside Los Angeles have refused to relocate, preferring instead to commute from other parts of California or from other states. Poor public schools and memories of the 1992 riots have hurt Los Angeles, Bellano said.
Still, Rohit Shukla, chief executive of the Los Angeles Regional Technology Alliance, said, “The good news outweighs the bad. The perception that dominated reality for so long is changing and it is becoming reasonably easy to attract people here.”
Salaries at start-ups, defined in the survey as venture-backed firms with revenue of $10 million or less, are lower than those at publicly traded Internet firms. CEOs at post-IPO firms earn an average of 50% more in salary than their counterparts at start-ups, but have a much lower equity stake in the company. The salary gap for marketing, sales and financial executives at pre- and post-IPO companies ranges from 50% for chief financial officers to 9% for vice presidents for business development.
High-paying deals, such as those at Santa Monica-based Digital Entertainment Network, are exceedingly rare, recruiters said. Digital Entertainment President David A. Neuman received $1.5 million in salary and bonus in 1999, according to public securities filings, a large sum even by non-Internet standards.
But the days are over when executives such as EToys CEO Toby Lenk join start-ups for relatively modest wages in return for a sizable equity stake. Lenk earned $108,000 and had an 8% stake in the company in 1998, the last year for which figures are available.
Few CEOs will accept less than $250,000, said Linda Nicolai, managing director of Brad Marks International, a Los Angeles recruitment firm. CEO candidates are taking pay cuts of 20% to 50% to move from middle-management corporate jobs to top spots at Internet start-ups, she said.
“There is a nut people need to maintain their lifestyles, and usually that nut is $250,000,” Nicolai said.
High-level executives who take pay cuts do not have to wait long for their potential bonanza. The cliff period--the amount of time new employees must wait before purchasing stock--is being cut to six months from one year, recruiters said. And start-ups are changing vesting schedules so these executives may exercise their stock options over a shorter period of time. Vesting schedules have been cut to four years, and in some cases three, from an average of five years, Bellano said.
“In general, it is a three-year commitment,” said Nicolai, referring to the executive contracts. “Three years is not long to wait before becoming a millionaire.”
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Making It
Jumping to an Internet start-up from the corporate world doesn’t mean a big sacrifice in pay. Here is what venture-funded start-ups with revenue of up to $10 million are paying executives, compared with publicly traded companies with revenue of $20 million to $70 million.
