I think the offer I was presented is below market value, but when coupled with the purchase price it seems like a moot point.
Should I put up a fight? Does the acquiring company have the right to discount my salary because they're already paying for the company?
I have personally taken less than market value. I would never do that again. I would suggest that a founders value is much higher to the acquiring company than it is to the market. Hence a higher market value. On the other hand you are worth what you negotiate. Their job is to negotiate the best deal for themselves.
Make sure that there are escape clauses if your liquidity depends on a promised liquidity event. Mine has not happened yet and may never happen. Also if earn outs depend on anything outside of your control make sure that if those events don't happen your earn out goals are adjusted accordingly. We missed an earn out by less than 10% . The acquiring company did not sign deals they committed to signing that would have facilitated at least 30% toward the earn out. Ouch.
On earn-out, I've never seen a company actually hit their earn-out numbers. IMHO, they're usually set up to get the management or shareholders to accept a smaller valuation than they would otherwise. And the earn-out numbers are usually based on the best-case scenarios being presented by the company being acquired. ;) The scenarios were somewhat unrealistic, especially considering the major disruption of going through an acquisition, and possibly increased levels of big-company-bullshit it may take to get sales closed. In some cases, the fictional earnout values were obvious face saving measures for executives and the board.
Post acquisition I was given a raise to above what a Sr. dev. would make, but less than a CTO. Coupled with the acquisition price, I'm very happy, and my stress level is lower.
The answer to the first question is a "no". Slightly below market average is OK, but taking, say, a 20% hit is not.
Whether to fuss or not really depends on how much you are getting out of the actual acquisition. Just do the math. Assume you are going to stay with an acquirer for 2 years, add up what you will not be getting in salary and compare that to what you get from the deal.
All in all though .. this sort of an attitude is unhealthy and you should not endorse it. There could be two reasons for it:
# they think they are making you a favor
# the deal is so marginally beneficial for them, that the size of the salary makes a difference
In either case, I would be prepared for further surprises.
* Salary (should be market for your new skills and position)
* Retention bonus (usually paid out over 1-2 years)
* Conversion of equity (either to cash or to new stock)
The above depend a bit upon the acquiring company. If you are acquired by a large public company, then you should expect a competitive salary, reasonable bonus to keep you around, and some combination of cash-out and new stock to keep you strategically aligned. If you are acquired by another smaller company then your salary may be lower (but fair for that size of company), bonus may be given in stock, and your equity package is probably pretty flexible depending upon how long they want to you to stay.
As a founder, I took $1/yr salary with the expectation that I'd get a market rates when we secured funding. As an acquisition I negotiated what I thought were fair market rates for salary and stock in the new company with a bonus to keep me happy to stay. When acquiring companies we would offer competitive salaries, retention bonuses (stock, cash, or both) for people we wanted/needed to keep around, and stock conversion (we were public by that point).
In your specific case, I believe that your salary should be market rate for your skills and your new position. The acquisition price is independent of your salary and should be treated as such.
The paying price for your company and your post-transaction salary are separate issues. You wouldn't agree to be acquired for less than you feel your company is worth so why agree to become an employee for less than you feel you're worth.
And don't discount the other kinds of value a larger company can provide. Different positions, your working schedule (4 day week?), company car, etc... Now is the time to ask for what you want.
Presumably the extra consideration for your startup is baked into the cash/stock part of the deal.
Why would they stay?
They usually DON'T stay. But when they do, it's usually due to stock option vesting plans.
Steve Jobs earns $1 a year though...
Well, yeah, but god knows what he makes in bonuses, and his stock options are out of control. Not to mention the stock he owns, and its rising value (the past month notwithstanding).