I want my leadership team to have skin in the game as we scale, but I am terrified of creating a complicated bonus structure that incentivizes the wrong behaviors. How do we design executive compensation that aligns with our long-term V/TO goals?

Question

Tyler Smith · Accepted Answer

Keep your executive incentive plans simple, transparent, and aligned with company-wide outcomes. Complex bonus structures that measure individual departmental metrics lead to siloed thinking, where leaders protect their own bonuses at the expense of the overall business. Instead, tie the majority of your leadership team's variable compensation to one or two collective, company-wide metrics on your V/TO, such as net profit or EBITDA. When the company wins, everyone on the leadership team wins. To keep the focus sharp, make a portion of the bonus contingent on each executive successfully hitting their individual quarterly Rocks. If a leader consistently misses their Rocks, they should not receive their full bonus, even if the company hits its profit targets. This structure rewards teamwork, drives execution, and ensures your leadership team behaves like cohesive owners of the entire enterprise rather than defenders of their own departments.