From Canadianbusiness.com: Read the entire article here.
To solve the mystery of the underpaid entrepreneur, Wasserman collected data from 1,200 executives at more than 500 U.S. high-tech companies. After controlling for numerous variables such as experience and company size, his findings were stark: founders earn about $30,000 (U.S.) a year less than hired-gun managers doing pretty much the same job. In fact, 51% of founders earn less or the same as their employees.
The good news: the founder discount isn't forever. It shrinks over time and with the growth of the company. The bad news? Founders' compensation is inversely related to their control over the organization and their own job satisfaction. As I read it, as a company grows and gets more complicated — with more layers of management, boards of directors, outside investors and stricter management-performance metrics — founders get paid more because their jobs get harder.
But why does the gap exist in the first place? In simple terms, it's because founders tend to care too much about their own creations. Outside executives have to be paid market rates or more to join a company, and if their compensation doesn't keep pace with the outside world, they have little incentive to stay. Founders take a longer view. Like Cullen, they often put the company's financial needs ahead of their own. And their boards of directors don't worry that founders will bail out, because they know that founders are emotionally committed to the organization.
And there's this:
Paul Britton, a compensation consultant to businesses big and small, sees this problem again and again. The founding partner of Crossford Consulting in Toronto says there are two stupid reasons why entrepreneurs underpay themselves.
First, he says, some entrepreneurs think they can use their own lousy compensation as a lever when negotiating subordinates' pay. By pointing to their own pay packages, they think they can convince their employees to accept less, too. The problem, of course, is that your best people have lots of job options and know you have an ownership stake; it's generally only less valuable employees who will agree to work for below-market pay.
The other reason entrepreneurs underpay themselves is bad budgeting, says Britton. Instead of factoring in an appropriate salary for themselves ahead of time, founders will wait and see how much money the business makes over the year, and draw from that. When he asks groups of entrepreneurs if they have built a rate of return for themselves into their forecasts, Britton says only about one person in 20 will raise their hand.