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© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.
Conscious Compensation®:Paying People at Impact Startups
The Impact HUBSeattle
30-May-2013
Compensation Venture Group, Inc.www.compensationventuregroup.comfred@compensationventuregroup.com
© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.© Copyright 2011. Compensation Venture Group, Inc. All rights reserved.
Compensation Venture Group
Equity Interests andAdvisory Roles
Professional Roles
Online Content
Pay and Performance: The Compensation Blog
Conscious Compensation: The Impact Compensation Blog
Effective Equity: The Equity Compensation Blog
Compensation
Consulting
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Expert Witness
© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.
Passion and Purpose
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• Find ways to allocate an organization’s financial capital…
• To its human capital…
• Based on creating success for all stakeholder groups…
• Over an extended time period…
• Increasing the economic benefits for all stakeholders…
• To enable the organization to find and engage the right people to fulfill the mission, purpose, and business objectives
© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.
Pay in Public Companies is All Messed Up
Because of…
• Activists
• Consultants
• Media
• Wall Street
• Government
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Pay is…
• Short-term Focused
• Complex
• Homogenous
• Compliance-focused
• Targeted by populists
• Increasingly regulated
© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.
The Prevailing Performance Measure: TSR
• Stock price growth
Plus
• Dividends (Reinvested)
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Why? Exclusive Focus on One Stakeholder Group
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To Increase TSR You Can Take Money from Others
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Or, Optimize Value for All Stakeholders, and Share
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• This is Conscious Compensation©
© Copyright 2013. Compensation Venture Group, Inc. All rights reserved.
Pay at Startups Used to Look Like This
• Base Salary
• Stock Options
• Lean Benefits
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Realizing Good (or Better) Pay Required a Transaction
• IPO
• Acquisition
• Restructuring
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But what if you want to build a sustainable company and not liquidate?
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Pay at Startups is Homogenous Due to the Financing Cycle
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InvestorsFounders
Board Members
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Financing
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Founders
InvestorsBoardMembers
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Growing Up
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Founders Investors
BoardMembersBoards of
Private Companies
Boards of Public
Companies
Boards of Venture
Companies
Boards of Other
Companies
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Now Compensation Discussions Turn To…
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• Timeline for return to (liquidity for) investors
• Conformity with market norms = less innovation
• Burn rate (dilution) = less sharing of ownership with employees
• Exit strategy focus = public company norms for pay
• Formalization of pay processes = less discretion
• Risk management = decisions driven by avoiding litigation
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Finding a Balance: Capitalism and Social Impact
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Traditional Capitalist
Compensation
ConsciousCompensation©
Socially/PoliticallyCorrect
Compensation
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Referencing the Model of Conscious Capitalism
Transcend profit maximization
Create stakeholder engagement
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Source: Conscious Capitalism
Managed for simultaneous benefit of stakeholders
Create value for all stakeholders
Multiple constituencies
Profit important, not sole purpose
Trust Authenticity Caring Transparency Integrity Learning Empowerment
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Very Difficult to Do in Larger Companies
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Founders
VentureInvestors
BoardMembers
ProxyAdvisers
Institutional Investors
SEC
Media
Peer Companies
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So We’re Focusing on Other Kinds of Companies
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Who Can Grow into a Larger Social Impact Company
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It Starts with Some Fundamental Decisions
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Form of Organization
C Corp
S Corp
LLC
Value SharingStay Closely
Held= Compensation +
Dividends
Broad Ownership
with Interim Liquidity
Broad Ownership with
Transaction-Contingencies
Equity Compensation Alternatives
Partner-
ship
SoleProprieto
r
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Then the Decisions Keep Coming, and Getting Harder…
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