We are starting to prepare for a clean exit in three years, but my leadership team is demanding significant salary increases and equity to stay committed. How do we structure their compensation and align it with the growth of enterprise value without draining our current operating cash?

Question

Tyler Smith · Accepted Answer

When you are preparing for a clean exit, you cannot afford to drain your operating cash on high fixed salaries. You must align your leadership team's compensation with the ultimate goal: building enterprise value. This requires shifting from a high base compensation model to a performance based, enterprise value sharing model.

Start by using your V/TO to paint a clear picture of the three year target. Show the leadership team exactly what the company will be worth at exit and how their daily execution drives that valuation. Use your Accountability Chart to clarify who is responsible for the metrics that buyers care about most, such as recurring revenue, profit margins, and automated operational workflows.

Instead of giving immediate cash raises, implement a phantom stock plan or a transaction bonus pool. This structures their compensation so they receive a meaningful payout only when a successful exit occurs. Tie these incentives to the completion of key long term Rocks, such as standardizing processes or integrating AI powered operations to increase margins.

By structuring compensation this way, you ensure that your leaders are thinking like owners. They will focus on enterprise value rather than short term departmental budgets. If they GWC their seats and believe in the vision, they will welcome a plan that rewards them for the actual value they help create.