I know of a 6 year old start up. Its CEO wants to draw a salary of $1 per month to motivate sales force to focus on large deals. Is it a good idea?
Is CEO drawing a salary of $1 per month a good idea?
Answers
A 6 year old company that isn't a start-up. It may be struggling, failing or flying high, but it left its start-up phase long ago.
As far as a $1 salary, a) is the CEO independently wealthy? b) why would that really motivate the sales team, typically money they get motivate them, and c) a CEO who makes a fair salary vs an outrageous salary compared to the rest of the company would probably provide a better motivator.
I am not clear on the motivation, or connection between the $1 and the sales team. I would advise a tiered commission structure which has a higher percentage payout on larger gross $ sales. As said above...usually money motivates sales teams. Like adding a "SPIFF", or special incentive to a particular slow moving item in retail, the associates will push that item just to make the extra $5 per sale.
Salary or "fixed pay" is not viewed as "pay-for-performance". The $1 salary can also mean "we're in this together"..." I don't make money unless you do" . Generally, the upside is far more lucrative for parties involved.
I agree with the previous commenters - I don't see a correlation between the CEO's salary and motivation for the sales team. Sometimes company leaders use something like a $1.00 annual salary to call attention to themselves in the name of being fair but I haven't found it to be helpful, especially if the CEO has ulterior motives. It is better to be transparent and fair with everyone and offer incentive compensation that motivates the kind of behavior that helps everyone win.
Not sure of the company structure, but if its an S-corp you may want to reconsider the $1 for the CEO. The IRS will not look kindly on it, and would not care what the motivation was for doing so.
1
C-corp as well. There are potential issues.
http://www.irs.gov/Businesses/Corporations/Executive-Compensation---Fringe-Benefits-Audit-Techniques-Guide-(02-2005)
One often, cannot win. I am aware, via an executive acquaintance, of a privately held relatively small multi-corp entrepreneurial situation where, the IRS has repeatedly challenged the owner's $1M annual salary he pays himself.
He's lost every time but, the nut-case takes them on anyway. He likes to say it's about principle.
The IRS sees it only as
The $1 salary is mostly smoke and mirrors. The more lucrative compensation is in the bonus and stock grants.
That being said, as a "start-up" funds can be a challenge so I reserve judgement on the $1 salary. However, I also agree with others not being sure on the correlation between the $1 salary and for it being used as a motivational tool.
I believe that there is something missing in the question. The only way that I can see this as a motivation tool for the sales team is if the $1 is fixed salary and the rest of the remuneration is performance based
Is it legal? Isn't there a minimum wage requirement? Does it also affect any company-provided salary-multiple life insurance?
One other issue is what the $1 salary telegraphs to either their investor or lender. It doesn't look good when you learn that your borrower appears so under capitalized that the CEO can't afford to pay themselves or that their
Hmm. Maybe, the CEO is taking the $1 salary and is offering the balance to the top performer in the sales force as a bonus.
What would be cool is to do like pirates in days of yore. When the pirate booty was divided, the captain took half. Then, the first mate took half of the remaining. and so on, down the line to the last guy on the ship. It motivated each man on the ship to work hard to boost his own ranking on the ship. By going up one level, it doubled their income!
Oh, and on pirate ships, despite what is seen in Hollywood movies, pirates elected their captain of a voyage and that is why there were relatively few mutinies...you elected the guy to lead the voyage. My guess is that the owner of the ship either got a portion agreed upon ahead of time (if the ship wasn't stolen) and the guy who hoped to be chosen as captain hand-picked the crew to ensure he would be elected captain.
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