Startups may freeze senior management salaries during appraisals to survive funding challenges
- ByStartupStory | April 10, 2023
Startups and ecommerce firms are anticipated to freeze the salaries of senior management during appraisals as they resort to cost-cutting to withstand the tough funding environment, as per sources. To preserve cash, many startups are expected to withhold raises for their senior staff this year, with some undergoing layoffs and reducing the pay of their top management. Experts suggest that startups need to be prudent in their expenses to weather the ongoing economic slowdown.
Startups and ecommerce firms are expected to freeze senior management salaries during appraisals as they increase cost-cutting efforts to survive in a challenging funding environment. According to founders, investors and HR experts, many startups will withhold raises for senior staff, and some companies may even consider pay cuts for top management to conserve cash. Flipkart and Unacademy have already announced salary freezes and pay cuts for senior leadership, as they struggle to manage resources in a tough economic climate. The ecosystem is under pressure to manage costs, and job cuts alone may not be sufficient to control the burn rate, said Anshuman Das, Managing Partner at Longhouse Consulting.
According to sources, a significant percentage of employees, ranging from 20-30%, are likely to face a freeze in their salaries during appraisals at several startups and ecommerce companies. In the current economic environment, companies are trying to conserve cash and are taking steps to manage costs. While some firms are freezing increments for senior staff, others are implementing pay cuts for their leadership. The downturn is also seen as an opportunity to build businesses more efficiently. Sandeep Murthy, a partner at venture capital fund Lightbox Ventures, suggests that many companies will have to find ways to “do more with less.”
According to Sandeep Murthy, partner at venture capital fund Lightbox Ventures, during a funding crunch, senior management are motivated by long-term value creation in the business via ESOPs. Therefore, when funding is tight, the management reduces their cash pay to ensure the survival and growth of the company in the long run. In his opinion, this is not a new phenomenon as it has been experienced before. Many CEOs and senior staff who are aligned with equity-based compensation are taking pay cuts and working to create personal and company value through equity, he said.
The CEO of venture capital fund Lightbox Ventures, Sandeep Murthy, gave an example of Zeno Health, where founders deferred a portion of their cash compensation to bring the business to profitability. Senior management in many startups may not receive hikes this year due to cost-cutting measures to conserve cash during a harsh funding environment, with some taking pay cuts instead. Even companies in a more stable position are cutting costs. While sectors such as edtech and crypto have been hit the hardest, the industry as a whole has struggled with slowing funding, sinking valuations and layoffs. The CEO of another startup, who recently raised funding, said that a salary freeze for senior executives is likely, given the need to conserve money with no visibility on how long the slowdown will continue.
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