As we prepare the business for an exit, my leadership team members are focused on their individual department budgets and short-term bonuses rather than building enterprise value. How do we align their personal goals and compensation with the long-term success of the company?

Question

Tyler Smith · Accepted Answer

If your leadership team is focused solely on short-term department goals and budget preservation, you have structured your incentives incorrectly. To prepare for a clean, maximum-value exit, your executives must think like owners and take collective responsibility for company-wide success. You must transition them from siloed thinking to enterprise-value thinking. Start by aligning their focus through the V/TO. Ensure your long-term vision and three-year picture are crystal clear, and tie their quarterly Rocks directly to these overarching goals. When everyone is pulling in the same direction, departmental silos begin to break down. Next, restructure your compensation and bonus programs. If bonuses are based purely on individual department performance, leaders will naturally hoard resources and defend their territory. Instead, tie a significant portion of their performance compensation to overall company metrics, such as EBITDA growth or recurring revenue targets. You might also consider implementing a long-term incentive plan, such as phantom stock or a synthetic equity pool that vests upon a successful liquidity event. This gives your key leaders a direct, tangible stake in the ultimate exit valuation. When your leadership team benefits financially from the appreciation of the entire enterprise, they will stop fighting over petty department budgets and start collaborating to build a healthy, scalable, and highly valuable business.