Q: Dear SaaStr: Is it ethical for a startup CEO to accept sales commissions for the deals he closes?
This is a bit odd, because you want the CEO’s incentives to be linked to the entire company, not just his or her individual efforts.
Annual bonuses are a good idea for a CEO to stick to a stretch plan. But not a deal-by-deal commission like a sales rep. This is a flag for someone not going big, and not just seeing a real win in their equity, in a short term contract or two. A CEO who optimizes on short-term comp never really goes the distance.
But still – I did it once. Once, when the economy was in serious trouble, it was during ’08-’09, and it seemed that the world had come to an end.
I went to several of my big clients, and asked them to pay more at that time and pay upfront. Even though their contracts weren’t up.
And he did it. All 3 of them. Given our low burn rate, it basically brought in enough cash to fund us for the better part of a year. Another almost $400,000 in cash. It wasn’t for the most part for about a year.
I then asked the board for a $10k bonus. Suffice it to accept a little respect for some insane act of bringing in many hundreds of extra thousands of dollars from customers who had no contractual incentive to pay it. I needed a little nod that I had done well, done something crazy and difficult, for everyone, for all stakeholders.
It was a rough board meeting. He said no. So that tells you how people generally view a CEO taking a sales commission.
(Note: an updated SaaStr classic answer)
Published March 18, 2023