Roles and Compensation When a Founder Hires a CEO

When a founder of a company takes the strategic step of hiring a CEO, the roles and responsibilities of both parties can encompass a wide range of activities, varying depending on the stage of the company, the industry, and the specific agreement between the founders and the CEO. This article provides an overview of what founders typically do after hiring a CEO and explores the methods they use to get paid.

What Founders Do After Hiring a CEO

Strategic Vision

One of the primary roles of founders after hiring a CEO is to provide guidance on the long-term vision and strategic direction of the company. Founders may work on refining the company’s mission, vision, and values to ensure they align with the company’s goals and future plans.

Advisory Role

Founders often take on an advisory role, providing guidance and support to the CEO, especially if they have significant experience or expertise in the industry. This can be crucial for ensuring the CEO’s decisions are informed by the long-term perspective of the founders.

Board Involvement

Another integral role for founders is serving on the company’s board of directors. Founders can influence major decisions and ensure that the company remains aligned with its original vision. This involvement can be particularly important in early-stage companies where the direction of the company is crucial.

Networking and Relationships

Founders leverage their networks to build relationships with investors, partners, and key stakeholders. These relationships can be critical for the company’s growth, providing access to capital, partnerships, and strategic alliances.

Product Development

Depending on their background, founders may still be involved in product development, innovation, or other operational aspects. This involvement can help ensure that the founders’ vision for the product is maintained and that the company stays true to its core mission.

Company Culture

Founders play a key role in shaping and maintaining the company culture, particularly in early-stage companies. Establishing a strong culture is essential for retaining talent, fostering innovation, and creating a positive work environment.

How Founders Get Paid

Salary

If the founder remains active in the company, such as in a role like chairman or a different executive role, they may draw a salary. This salary can be similar to that of other executives, including the CEO, based on their level of involvement and responsibilities in the company.

Equity Compensation

Founders typically retain a significant ownership stake in the company, which can serve as a primary source of their compensation. This stake increases in value as the company grows and becomes more successful. Equity compensation can be a long-term incentive for founders to continue investing their time and effort into the company.

Dividends

If the company is profitable and decides to distribute profits, founders can receive dividends based on their equity stake. This form of compensation is particularly relevant for early-stage companies that may need to reinvest profits back into growth and development.

Exit Events

Founders can realize significant financial gains through exit events such as acquisitions or IPOs. In these scenarios, the founders’ shares can be sold or converted into cash, providing a substantial return on their investment of time, effort, and equity stake in the company.

Consulting Fees

If founders choose to step back from day-to-day operations but still want to contribute their expertise, they might receive consulting fees. This allows them to leverage their knowledge and experience in a flexible and compensated manner, ensuring they remain involved in the company’s strategic direction without taking on full-time responsibilities.

Overall, the dynamics between founders and a hired CEO can lead to a productive partnership where each party contributes to the company’s success in different ways. By understanding the roles and compensation methods, founders can create a framework for a collaboration that maximizes the potential for both the company and its key stakeholders.