We pay several long-tenured leaders above-market executive salaries based on past loyalty, but their actual output belongs in lower-tier seats. How do we correct legacy compensation without destroying their morale?

Question

Tyler Smith · Accepted Answer

Overpaying for past loyalty while underdelivering on current capability creates massive financial drag and quiet resentment across the leadership team. When newer, higher-performing executives see legacy managers taking home executive compensation for director-level output, it undermines your entire culture of accountability.

You must disconnect historical gratitude from present-day market value. Start with the Accountability Chart. Define the true seat required for the business to scale to its next financial milestone. If the legacy employee only GWCs a specialized or lower-tier role, that is the seat they must sit in.

Next, address the compensation gap transparently. You have two viable paths. The first is a phased compensation reset: you freeze their current salary, eliminate executive bonus pools tied to enterprise performance, and establish that future variable compensation will only be unlocked if they expand their seat or hit specific high-impact Rocks. The second path is a structured ramp: give them ninety days notice that their base salary will adjust down to the market rate for the role they actually perform.

Be prepared for them to push back or walk away. When you correct an inflated salary, you are removing an unearned subsidy. If they threaten to quit, do not cave out of guilt. Subsidizing underperformance to avoid difficult conversations is an expensive way to protect someone else feelings while compromising your balance sheet.