Compensation and Incentives

I was on a call last week with an owner who couldn't figure out why his best salesperson kept underperforming in Q4.

He'd given her a base salary, a bonus tied to annual revenue, and what he thought was a generous commission structure. On paper, it looked right.

But when we dug in, we found the problem. By October, she had already mentally "checked out" of hitting her number. The annual target felt too far away, the bonus felt uncertain, and nothing in the structure rewarded her for closing deals before December.

The compensation plan wasn't motivating behavior. It was just paying for time.

This is one of the most common and most expensive mistakes I see business owners make. They design compensation around what feels fair rather than around what drives the specific actions they need from their people.

Compensation is not just a cost. It is a communication tool. Every plan you put in place tells your team what you actually value, what you will reward, and what you will tolerate. If your people are not doing what you need them to do, look at the incentive structure before you look at the people.

The owners who build companies that run without them are not necessarily paying more. They are paying smarter. Their compensation plans create alignment between individual behavior and company goals. When that alignment exists, you stop managing people and start managing outcomes.

Most owners inherit or improvise their compensation structures and never revisit them. That is a slow leak in the business.

When did you last look at your compensation plan and ask whether it is actually incentivizing the behavior you want?

---

From "The Owner's Almanac" - 90 days to build a business that runs without you. Available on Amazon.