In case of financial trouble (very common at startups), who gets to be laid off first, the CEO or the developer?
Also, rank-and-file employees are typically scape-goated in legal proceedings, example: finance people going to jail for rogue/insider trading, even though upper management at least encouraged such behavior.
This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?
A CEO or manager at many large corporations often has very little risk relative to the employees, and their contributions are often small relative to that of the employees, and in the least often not greater than the employees. I'm not saying there aren't good managers, or that they do nothing, but management has become too top heavy in the US as a whole, and the salaries of management pathologically disproportionate to their relative contributions.
You don't have to look very far to find examples of CEOs driving businesses into the ground and then leaving with severance packages that dwarf average employees' salaries, sometimes even average employee lifetime salaries, or of CEOs sheltered from financial or legal consequences by corporate personhood. There's also plenty of CEOs who take over businesses that are already turning around from a downside, after reforms that were put in place, and then are credited with causing the improvements, even though they did nothing.
Starting a company is different from managing or acting as an executive of an existing one, and my guess is that this is what people are reacting to. Even founders are sheltered to some extent when you consider venture capital and the protections of incorporation relative to, say, acting as an independent contractor.
In cases where employee ends up dependent on their employer, knowledge and experience of their job market would have prevented them from falling into this "trap", and also help them to escape it.
Likewise, employers (the shrewd ones at least, which our contemporary world tends to worship for good or bad) often don't actually take on real risk. We have witnessed many cases where companies have capitalized on profits, but chosen to socialize losses, bankruptcy or even worse, internal misconduct. This is in addition to the veil which usually shelters real corporate decision makers from risk.
This is not to say that risk analysis does not matter, but to emphasize its inherent subjectivity, and that the perception of risk can be varied through greater knowledge of one's situation.
That doesn't happen. The company has those debts. Not the individual.
"Early-stage startup employees are given greater compensation packages than later-stage employees specifically because of the greater risk of going to work for an early-stage startup."
Usually not, actually. We've seen plenty of stories about early stage employees being underpaid compared to what the new guys get, and their stock compensation gets dilluted to all hell.
"This isn't a very difficult thought exercise - if you believe the risk profile is greater for employees than CEOs, then why not quit your job and become a CEO of your own company?"
Because I like engineering, and becoming CEO is the fastest way I know of to stop doing engineering.
In certain industries, in certain places, this is possible. For tech businesses in the US, it might even be the norm. But it is far from universal. My food business failed 3 years ago, and despite being an LLC, I'm still personally liable for brick and mortar leases, business loans, credit card debt, unpaid taxes, and outstanding invoices from suppliers. On good days I think I might get past this and be a member of society again, but this seems far from certain. You are welcome to argue that with better risk management this would not be the case, but your blanket statement "That doesn't happen" is false and offensive.
Small company and startup loans are often secured by personal guarantees of the owners / founders.
If you haven't tried you probably can't imagine how stressful it can be at times...
Also, early startup employees are persuaded to accept below-market salaries and work a lot of overtime, exactly like the founders, without the upside ( rarely more than 1% of the company).
The downside was a lower pay now and substantially larger risk of losing my job compared to other places. And developer work here isn't exactly hard to find.
The potential upside was... maybe two years down the line they'd start paying me what other people were willing to pay me now. The guy I negotiated with even tried to make it sound like we were all there on the same terms cos our monthly pay was the same, leaving out that I'd be the only without a share, the other four sharing the company equally... have to say I walked away from that one.
I'm not saying there aren't early employees that deserve better deals, I'm quite sure there are. But a lot of the perception of unfairness I think stems from a lack of understanding of the differences between being a founder and being an early employee. They are just very different bargains, each with their ups and downs.
For example, let's say three founders own 20% each and there's an external investor that owns 20% and a 20% options pool. The founders payed for their shares with a year's sweat equity. The first employee gets 1% from the options pool. From then on everybody makes the same, and works just as hard. Is that unfair?
I'd say it depends, and the math is not entirely straightforward... Stuff you would have to take into account (and which I rarely see mentioned when people talk about this) include the probability of the company failing before raising money / hiring the first employee, each person's alternative costs and the company's expected future value when the first employee was hired. There are also more subtle issues, like the employee having every right and incentive to leave the minute the company starts going downhill, whereas the founders... Well, it's just very different.
I've been both by the way. :P
For their exposure, employees are compensated with salaries. Are you willing to pay your company money if the product you work on misses expectations?
Wrong comparison. The CEO and developer are both employees. I've outlasted laid-off CEOs at several places of employment.
The comparison is between an employee and an owner. (Of course an owner may ALSO be an employee, maybe even CEO, and an employee may also be an owner, but comparison should consider these roles separately.)
The employee is risking having his assets stop growing temporarily as he is forced to go find another source of income. The owner might have no income from the business for a long time even if it is succeeding (or ever if it fails) and has to hand over already-earned assets to the business in hopes of getting it back plus more, but if things go south, he might not get anything back and may even be forced to hand over additional assets to cover damages. The employee's risk is temporarily not gaining assets, while the owner's risk is potentially losing his.
Reality is a little murkier than this separation, because an employee might lose assets moving to a new city only to get laid off. In a certain sense, an employee is the "owner" of a small service business providing services to a customer (his employer) and owners can trade off equity for risk by bringing in partners, but the big picture is still that people who decide on ownership vs. employment are choosing between two very different risk/reward profiles.
However, there are many staff that are let go prior to cutting engineers out right.
