Compensation, Transitions, and the Golden Parachute Trap
From fair pay to IRS 280G rules, what founders need to know to avoid surprises when it’s time to sell.
In collaboration with Danielle Moore, Keia Atkinson, and Brett Owens from Fisher Phillips.
Compensation is one of the trickiest parts of scaling and selling a startup. Acquirers want to see fair structures that retain talent, not shortcuts that only benefit founders.
Here’s what to watch:
1. Don’t Fall Into “Founders First” Structures
Zero-salary or token wages might feel scrappy, but they’re a red flag.
What to do:
Pay fair wages, not just equity.
Benchmark salaries against startups of similar size and stage.
Show that your team has been treated fairly; it boosts retention post-acquisition.
2. Plan for Smooth Transitions
Last-minute promises or undocumented agreements can tank trust during diligence.
What to do:
Document all employment commitments in writing.
Identify key team members early and build retention plans for them.
Avoid making new compensation or severance promises during the M&A process.
3. Understand the “Golden Parachute” Rules
These IRS rules (Section 280G) can hit tech founders especially hard. If you’ve taken a low or no salary for years, you could be setting yourself up for a painful tax surprise when a deal closes.
What to do:
Learn how 280G rules work and when they apply.
Work with counsel early to adjust compensation or find exceptions.
Don’t wait until a deal is on the table, by then, your options are limited.
Closing Thoughts
Compensation choices ripple far beyond your payroll. They affect retention, diligence, and your final valuation. The earlier you address these issues, the fewer surprises you’ll face when the big opportunity comes.
This article was written in collaboration with Fisher Phillips, an international law firm representing employers in labor, employment, and immigration law. You can read their full original article here.