Salary Planning for Management at Start-ups

Salary Planning for Management at Start-ups

If you're new to Japan and have been tasked with setting up a company here, one of the biggest challenges is hiring and retaining new staff. Core to incentivizing a Japanese employee to enter and remain at a relatively small and probably unknown company is to get the financial mix right - as well, of course, as the location, quality of the work, and the work environment.

Last week I outlined a strategy for building out the staff of a software company of about 10-20 people in Tokyo - that is, a smaller start-up, not the full-blown multinational kind. This week, let's fill in the gaps in terms of remuneration.

Starting with the CEO, you will find that the larger and better known your brand, the more people expect you to pay for your CEO. Of course, this will generally mean you will get your pick of talent and proven experience. As of writing (July, 2004) CEO packages start with a base salary as low as JPY15-16 million plus performance packages that should reasonably allow the person to make JPY20-25 million per year - starting lower in the first year (but minimum JPY20 million) and moving upwards from there.

Your base line for negotiating a CEO package is what they are receiving now. My rule of thumb is the assumption that most Japanese CEO's currently working for less than JPY25-30 million a year move for money and prestige, whereas CEO's over that amount are moving because of problems in their current position. Therefore, you need to offer at least a 20% premium on the base salary at the low end versus their current salary, whereas for the higher end you can offer performance incentives and possibly even a lower base salary.

The practical high end for highly experienced CEOs in the software industry is about JPY40-50 million and I haven't come across many individuals above this amount. If you want to pep up your incentive package, you might also offer stock options, but only if the stock is in the local (Japan-based) company, else you may be loading the CEO up with a large tax bill when the options are exercised.

Assuming that you have the CEO on a combination of JPY16 million base and JPY5-10 million of performance pay, you thus set the base line for your next tier of managers. The sales manager will probably be on about JPY10-12 million base and an incentive package, which lets them earn between JPY15-25 million per year. For a solid performer, JPY18-20 million should be your target, otherwise you may have a situation where the sales manager is making more than the CEO - an untenable situation in a Japanese environment. If you do have a superstar, trade the person their performance bonuses for the stability and prestige of a higher base salary and move them more into a team building role, assisting his/her team members to achieve their numbers.

The engineering manager will be on a higher base than his/her manager colleagues, most likely around JPY12 million - JPY18 million per year. If they get a performance bonus, it would be no more than 10-20% of their base. Why? Because in the old days of seniority and job responsibility, it was accepted wisdom that an engineer couldn't influence sales and thus shouldn't be judged by the bottom line - this is why large companies such as NTT and Hitachi, both engineer-driven companies, got themselves in such financial trouble in the 90's, because their engineering people weren't held responsible for the financial performance of the business.

Of course, things are changing slowly, but if you're looking for a highly competent bilingual technical person and you want to retain them, then market rates prevail. If you do want to add in a performance component, make it revolve strictly around SLAs (Service Level Agreements) and quality of technical services to clients.

Marketing managers in smaller companies generally receive between JPY8-12 million per year, with a small bonus component. They might receive some special recognition if they are able to get the company in an article in the Nikkei or similar industry news source - and in fact I recommend this.

Accounting managers (not CFOs, who belong to a larger organization) range from about JPY6-7 million for a glorified bookkeeper through to JPY10-12 million for someone who can maintain accounting vendor relationships (tax office, tax accountants, salary payments outsourcing company, etc.) and do Head Office reporting. Admin and HR managers generally receive similar amounts, with the higher band going to someone who is largely responsible for bringing key employees into the company because the CEO's connections are insufficient.

Terrie Lloyd is the founder of DaiJob, Inc. He also writes a weekly newsletter for entrepreneurs and business people about business and political opportunities in Japan. You can find the newsletter at www.terrie.com. For further contact with Terrie, email him at terrie.lloyd@daijob.com.