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Start-up salaries get reality check

Honchos at new tech firms have to do more than show up to get the big bucks now, a new study says.

The days of easy money as a tech executive at a start-up are over, according to a new study.

Salaries for information technology executives at upstart technology firms plateaued in 2003, after three years of sluggish growth, according to the report from executive search firm J. Robert Scott, law firm Wilmer Cutler Pickering Hale and Dorr and Ernst & Young.

A greater portion of the executives' total compensation is now based on performance, according to the report, released Wednesday.

"As little as four years ago, cash was being distributed rather indiscriminately to start-up companies, and their leadership teams were receiving Fortune 500-level salaries, as well as equity stakes and large cash bonuses," said a statement from Aaron Lapat, managing director of J. Robert Scott. "Today, early staged technology firms have returned to offering salaries that are more realistic for start-ups and are paying executives for reaching real performance milestones."

The latest study comes amid other sobering signs in the realm of tech compensation. Many middle managers in the information technology field are seeing their pay drop, according to a recent study from research firm Enterprise Systems. In addition, a report late last year predicted that the starting salaries of IT workers in the United States would fall an average of 1.6 percent in 2004.

The new survey was conducted between December 2003 and March 2004. More than 900 executives were surveyed across the country--senior executives from 170 private technology companies in five business segments: software; communications; hardware, semiconductors and electronics; IT services, consulting and integration; and content and information providers. The largest participating industry sector was software, representing 51 percent of respondents, followed by IT services/consulting and systems integration at 18 percent.

The study found that the average base salary for IT executives increased 1.9 percent last year. The report characterized this growth as flat, compared to large year-to-year increases of the past. Base salaries increased 2.9 percent in 2002 and 7.9 percent from 2000 to 2001, according to the study.

Salaries of executives at the high end of the pay scale, however, increased more dramatically. Those in the top quartile received average total cash compensation increases of 18 percent, according to the study. Chief executive officers, chief operating officers and sales chiefs each enjoyed a 27 percent jump in total cash.

The average bonus across all positions and segments increased by 15.6 percent, according to the study. Over the past four years, the percentage of bonus-to-cash compensation has steadily risen, to 21.9 percent, up from 15.7 percent in 2001 and 19.3 percent in 2002.