Are managers paid too much?
Fintech CEO salaries came under the spotlight this week when it emerged that the pay package at Klarna CEO and co-founder Sebastian Siemiatkowski increased by 35 per cent to £1.05m in 2022, despite the Swedish buy now, later the firm pays the biggest loss in its history at £830m.
To justify the pay rise, Klarna said its pay policy was in line with other tech firms “to hire and retain the best talent”.
Fintech is a broad congregation these days, so it’s hard to say whether Siemiatkowski’s salary is particularly high or makes telling comparisons between CEO salaries.
Some fintech CEO salaries
In comparison, the highest paid director in neobank Starling, believed to be the CEO Anne Boden, took home £1.02m in basic salary in 2022; the listed payment company Wise CEO Kristo Käärmann receives a salary of £197,000 a year.
Meanwhile in the US, Robinhood CEO Vladimir Tenev was the highest-paid CEO in US financial services in 2021, with a total pay package of £661m, driven mainly by equity grants.
These salary levels are a far cry from the CEOs of seed-stage fintechs, who are also often founders, who sometimes take home a nominal salary or even forego a salary altogether.
“Rewarding CEOs for poor company performance can also convey to workers the wrong message that subpar job performance is acceptable or even encouraged.”
Are fintech CEOs overpaid?
So are fintech CEOs, generally speaking, overpaid? Katherine Farquharsondirector of Storm 2fintech recruitment agency, said it depends on several variables.
She said: “If there is a high demand for specific skills that CEOs have that are hard to find in candidates, CEO salaries will naturally be higher by the law of supply and demand.
“Secondly, high remuneration is arguably deserved if the CEO can make fintech stand out, achieve excellent financial performance and drive the company’s growth.”
She adds: “But I recognize that some might argue that fintech CEO pay has risen too high relative to the average worker’s pay (especially if fintech isn’t doing so well).
“Perhaps the better question would be: ‘Are fintech CEOs being rewarded too much relative to the rest of the employees at their respective companies?'”
Recruiters ‘surprised’ by poor pay for fintech executives
Andrew Cook, group leader for customer service at recruiters head count, who has long-term recruitment experience in traditional finance, says he is “surprised” at how poor most disruptive industries’ remuneration packages in the UK compare to traditional finance.
He adds: “I don’t think that the UK sector [fintech] is still in the same position relatively speaking as it is in e.g. Germany and in the Netherlands and increasingly in southern Europe.”
For example, he says that top managers in Germany are more likely to move from a traditional financial company or say one Mercedes to neobank N26 than you are for a similar move in the UK.
He adds: “I thought there would have been a lot more transfer and flow between traditional financial services into the disruptive world, and there hasn’t been.”
Cook says this is partly due to scale-up companies not being able to compete with established companies on overall pay packages. Generally speaking, CEOs of established fintechs tend to be paid significantly less than FTSE 100 CEOs, where the average CEO salary is £3.6m.
For example, CEO of HSBC Noel Quinn was paid £5.6m in 2022 and when long-term incentive awards are included, Quinn’s total pay could reach £10.5m, the bank said.
Fintech bosses paid in a number of ways
Like other industries, fintech CEOs are paid in a variety of ways, including base salary, bonuses, stock options and other perks.
However, depending on the fintech’s size, stage of development and other variables, the exact salary structure will vary between fintechs.
Farquharson says: “CEOs in the fintech sector are often paid handsomely compared to CEOs in other sectors, especially for startups. This is due to the fact that fintechs and high-potential companies are growing rapidly and need experienced and qualified CEOs to successfully negotiate the complex regulatory environment and compete in the crowded market.”
Cook says, “I certainly think the more established, the more commoditized, the more corporate businesses generally pay better across the board.”
Case study
An example of a startup CEO who has taken a pay cut to try to make his dream come true is Amit PatelCEO and co-founder of health insurance Peachywhich was launched in the FCA Sandbox last year.
Patel previously earned significantly more than his basic salary of £150,000 a year as a senior executive at Bupa but pocketed it to set up Peachy, where he and his two other co-founders now earn between £50,000 and £75,000 a year.
Says Patel: “It’s a constant battle. Whether that’s the right thing to do or not is a very individual decision, I think based on the business and people’s individual circumstances as founders.”
Before an investment injection of almost £1.5m last year, the start-up was effectively stalled, with none of the founders taking a salary and Patel consulting on the side to help support his family. Patel, who has a mortgage and three children in private school, says he has had to make several sacrifices to try to fulfill his dream.
“One of the non-negotiables is that my kids weren’t going to be pulled out of private school,” he says. “We’ve stopped renovating our house, we don’t go on holiday that much, we used to take at least three holidays a year and not worry about the cost, whereas now Eurocamp once a year is more in line with what we do.
“We don’t eat out much more, we look at bank balances and expenses and track it much more religiously throughout the months. The kids are not getting something that is absolutely essential and necessary for their lives.”
Patel says he and his co-founders, who are the majority owners of the startup, could give themselves a raise if they sign commercial deals or potentially negotiate a raise if they give up more equity in the startup during the next fundraising.
Despite the challenges, he is convinced that he has made the right decision and the long-term benefits should Peachy succeed are tempting.
“I may never get to my Bupa salary, but I’ve never had any equity in Bupa,” he adds.
Internal metric key
Patel believes that it is the shareholders, as the owners of the company, who will ultimately decide the salary of the fintech CEO.
He adds: “People are very quick to judge pay by company performance. But that is what is set internally, and if internally the calculations and obstacles have been overcome, then it is absolutely right to give the CEO the salary increase.”
But when it comes to Klarna, he says “it’s strange” that the CEO has received a pay rise given the increase in losses. He says that in the current age of transparency, firms should explain to their customers the rationale for wage increases, and reveal internal calculations.
Pay increases for “subpar” performance are a no-no
Farquharson says giving CEOs a pay rise for “subpar” performance is not something she would recommend.
She says: “A CEO’s compensation package should be dependent on their performance (as with most other professional positions) and the financial success of the company, to motivate them to strive towards achieving the company’s goals.
“Rewarding CEOs for poor company performance can also convey to workers the wrong message that subpar performance is acceptable or even encouraged, but can also lead to disillusionment among the rest of the workforce if the same rewards are not shared across the board.”
