Hopefully, sometime over the next few weeks, you’ll finish up your model and planning for next year. If not, please try to do it before 12/31 … 🙂
I’m working on this with several companies I am involved with.
I know we all agree everyone in sales has to have commissions and a highly variable comp structure. More on why here. But — I mean everyone that materially impacts the plan should have some variable comp.
By that I mean:
- Your VP Product should be incented to build the right features not only to Make a Great Product — but also hit the plan. How about a 15% variable cash component? A 15% bonus for exceeding the plan — and also perhaps some downside for missing it.
- Your VP Marketing sure better have her comp plan tied to the leads or opportunity commits that make the plan work. How about a 20% variable cash component? The leads aren’t there, she comes up short. But if the plan is blown out, she shares in the extra revenue.
- Your VP Customer Success sure better have her comp plan tied to hitting the upsell, retention, or negative net churn goals. How about a 30%+ variable component? Watch him sweat the lost customers 10x more when money is on the line.
- Your VP and Directors of Engineering need to build the stuff we need to hit the plan. How about a 10-15-20% variable comp plan here?
- Your Controller exceeds our collections goals, and you end up with an extra $300k of cash in the bank? How about a bonus here?
“Nah, my Director of Engineering doesn’t need variable comp” you say. We’re all in it together. She’s got plenty of equity.
But if nothing else, even for non-sales professionals, revenue is a clear team goal everyone can and should get behind. And paying for performance is just something all of us sort of viscerally understand, even if we’ve never carried a bag. We hit the ’20 plan together, you get a pat on the back, your equity is worth more, That’s Great. But if you get another $20k — just watch how people change. Maybe it doesn’t change the life of some of your senior hires. But if the reward is $0 — but appreciation in equity — you just won’t get the same alignment to your ’20 revenue plan.
Later, this may get harder. Later, you may need subordinate goals. But for now, I’d suggest tying a bonus plan for ’20 to exceeding the ’20 revenue plan for all your key hires, of every discipline.
Let me share two anecdotes.
Recently, I went through this exercise with an amazing company I work closely with. We added a variable component to the VP of Engineering’s comp plan. If we missed the annual plan, his salary dropped by 10%. If we hit it exactly, he got a 5% bonus beyond base. And if we exceeded it by 10%, he got a 20% bonus.
About 15 minutes after that, he came back. And completely changed the product roadmap for next year.
Now, you might argue that’s a mistake. Too much focus on the short-term over the long-term. Maybe. But … at least it creates alignment, a debate, a discussion. A new sense of shared focus on really, truly, hitting the ’20 plan.
I had a similar experience myself, personally. Back during our Year of Hell, I waived all my salary. I worked for no cash (though I took equity instead) for about a year after we raised venture capital.
And then, in the depths of the Lehman Brothers the-world-is-over-Sequoia-Says-Good-Times-R.I.P. days, I did something I was pretty proud of. I got up off the Mac and got 2 customers to prepay an extra $600,000 in cash upfront. When there was no contractual reason for them to do so. At a time the world was ending. Considering our net burn rate was low, this bought us another 9 months of runway.
So I asked for a $10k bonus. My salary was $0. But I needed the bonus. I brought in the money. I needed a tangible, real pat on the back. In the way only a check can do.
It was a confusing discussion with the investors. You need a $10k bonus, but you’re waiving your $120k salary? Huh? But I needed it. To connect my efforts to hit the plan, the $600k extra I brought in when the world was ending … with the plan itself.
So does the rest of your team. They need it too.
Not just the sales folks.
Note: updated for 2019+
awesome bonus chart from here