Founder pay: the most awkward conversation you keep avoiding

There’s a quiet trap a lot of founders fall into.

We build a business… and then feel weird about paying ourselves a proper salary.

You keep recruiting others and often paying them more than you pay yourself to run the company. 

And I think it gets even trickier when:

• you’ve got investors / shareholders watching, or
• you’ve got business partners who don’t work in the business

The first business I entered I had no cash to start it. Just and idea and a lot of hustle. A ripper bloke agreed to stick in the cash we needed to kick it off and we made an agreement that I would work for a reduced salary for a few years to earn my way in. 

So I paid myself $35k per year and worked 7 days a week to build something. Slowly that went to $50k and then $70k in the next business.

About 5 years in as the next business launched, I remember feeling awkward talking salaries. You end up in one of two bad positions:

1. You underpay yourself out of guilt

You tell yourself you’ll “catch up later” while you live like you’re broke and quietly resent it.

2. You pay yourself properly and it creates awkwardness (esp if the business doesn’t perform)

People start wondering if you’re double-dipping: “High salary and profit? Must be nice.”

Both scenarios feel pretty crap.

It’s different for me today as 100% owner. But when I had working and non-working business partners in other ventures, I felt like I always sacrificed too much all because I avoided talking about it.

The main mistake: mixing salary and profit

Salary and profit are two different lanes.

Salary is payment for the job you do.

Profit is the return for the risk you took (and the capital you left in).

When those two get blurred, everyone gets confused:

• partners feel like you’re taking too much
• you feel like you’re stripping the business of cash it needs
• nobody can explain what’s fair anymore and avoids talking about it

Two-lane founder pay

Here’s a clean way to think about it.

Lane 1: Market salary for the role

Pay yourself what it would cost to replace you with a competent operator.

Not what you need. Not what you feel comfortable with. Pay what the role is worth.

You might be acting as CEO/GM/Head of Sales/Head of Ops/Head of HR all at once. You don’t need to pay yourselves all of those rolls combined, but you still need a number that’s clear and justifiable.

As a general rule, your salary should be justified by role + responsibilities, not by ownership.

Lane 2: Profit distribution based on ownership

Profit is what’s left after:

• a real salary for real work
• reinvestment decisions
• sensible cash buffer

Whatever profit is left gets distributed based on the ownership agreement.

Profit is paid because you own shares, not because you worked hard.

The founder guilt trap

I remember telling myself back then that “I’ll pay myself later”. Sounded noble but man was that stupid. Eventually, I left those businesses and was never compensated for the real time spent or lack of pay/superannuation.

Listening to others in a similar boat to me back then, it usually leads to one of these outcomes:

• you burn out
• you start making decisions from scarcity
• you silently resent partners who get profit while you grind
• you take money out messily later (tax-inefficient and emotional)

I remember carrying a resentment that would show up in my tone, decision-making, and leadership. It wasn’t healthy.

The awkward partner problem (especially non-working partners)

If you have partners who don’t work in the business, this is where it gets spicy.

They see the P&L improving and assume that if there’s money available, we should all benefit equally. If you’re underpaying yourself or don’t have a performance bonus in place, you start to feel ripped off.

If you bring it up, they start to feel a bit the same way because they want a return on their investment.

The real issue is the lack of a clear policy everyone agreed to.

For example:

1. Agree on a salary philosophy

Market rate for the role. Reviewed annually (or when responsibilities change). And documented

2. Agree on a profit philosophy

What gets reinvested first (and why). What cash buffer stays in the business. When distributions happen and how they’re calculated.

Separate the conversations

You salary review shouldn’t happen in the profit distribution meeting.

One last thing…

If you want to build a serious company, you have to act like a serious company.

That includes paying the people doing the work properly. Including you!

And if the business becomes more successful and your role becomes heavier, the salary should reflect that.

Success shouldn’t increase guilt and resentment. It should increase clarity as you tighten up all the messy things you do when you start a business. 

Whatever position you’re in (part-ownership, investors, working partners), make the decision to discuss pay and what happens to profit. Don’t leave it unclear. 

Building a business can be so freaken awesome when everyone is on the same page.

I hope this helps you!