My leaders are only focused on their own department's performance because their bonuses are tied to individual KPIs. How do I restructure our compensation and incentive plans so they are motivated by overall company profitability and exit readiness?

Question

Tyler Smith · Accepted Answer

If you pay people based on siloed metrics, you will get siloed behavior. To build a cohesive, unified leadership team, you must align their financial incentives with the health of the entire organization.

First, eliminate bonuses that are tied solely to individual department targets. Instead, base their incentive compensation on two main components: company-wide financial performance, such as net profit or EBITDA, and the successful completion of company Rocks.

When a leader knows their bonus depends on the company hitting its overall profit target, they suddenly care a lot more about helping their peers solve operational bottlenecks. The Sales Director will stop pushing low-margin deals just to hit a volume target, and the Operations Director will actively look for ways to cut costs to help the bottom line.

This alignment is especially critical when preparing for an exit. Potential buyers look for a leadership team that operates as a single unit focused on enterprise value. By tying incentives to overall company performance, you foster a collaborative culture where leaders work together to solve big issues rather than protecting their own fiefdoms.