Guide On How To Give Bonuses for CEOs and VPs of SMBs

Posted by on February 10, 2011 in Business Management, Business Start Up Advice [ 4 Comments ]

bonusProviding an incentive program (a.k.a. bonuses) for the leadership team of any size business is crucial because it shapes the actions and behaviors of the most visible people in the company. So there’s a tremendous trickle down effect. Additionally, it clearly ties the leadership team to the critical goals of the company and quite frankly, if the goals are not met, there should be no bonuses. Lastly, if properly structured, they help foster a sense of team for the CEO and VPs of a company and team effort will always outperformed individual, “silo-ed” efforts.

The following is a suggested framework for goals and bonuses that should be very applicable for most small or medium size businesses.

    1. All leaders in a business should be goaled on the following four areas:

a.  Revenue. What is the revenue goal for the year?
b.   Profitability. What is the profit goal for the year?
c.   Customer Satisfaction. This should be measured as a regular basis, at least twice a year is preferable.
d.  Employee Satisfaction. All companies should measure (and care about) employee engagement.

There may be circumstances where a special 5th goal is appropriate, based on company circumstances, but never more than 5 goals in total should be assigned.

  1. Each goal should not be less than 15% weighting. In my view, it’s the minimum proportion to denote the goal as important. Anything less can be dismissed.
  2. Each goal has a floor and a (flexible) ceiling. Example, nothing is paid out unless at least 90% of a goal is achieved. On the upside, bonuses can double for 120% achievement but are capped there with some flexibility to pay more for super over achievement.
  3. Overall bonus is expressed as a % of salary at plan. Example, for 100% goal achievement, CEO’s are rewarded with a bonus equivalent to 50% of their salary and for VPs, its 30% of salary.
  4. Lastly, I believe that the VP of sales should also have a incremental quarterly bonus or commission structure.

The last element is the varying goal weighting by function within the leadership team, which I propose to be as follows:

Revenue Profits Customer Satisfaction Employee Satisfaction
CEO 30% 35% 15% 20%
VP Sales 50% 15% 20% 15%
VP Marketing 35% 25% 25% 15%
VP Finance 25% 45% 15% 15%
VP HR 20% 25% 15% 40%
VP, Technology or Operations 20% 35% 20% 2

The general theory here is that certain people will have more influence on certain elements and weighted accordingly (e.g. Sales: revenue, HR: employee-sat, Finance: profit). But equally important is that all leaders are tied to all 4 goals so that, as a team, they largely succeed or fail together.

Please let me know how you feel about this. Do you agree? Disagree? Comments welcome.

Related: More on why skin in the game is important for management.

4 thoughts on “Guide On How To Give Bonuses for CEOs and VPs of SMBs

  1. Pingback: A Guide to Bonuses for a CEO & VPs of Small or Medium Size Businesses |

  2. avatarryan tognazzini


    Interesting blog. Curious where you found your reseach for this. Is this based on benchmarking, best practices or your experiences? Also, do you feel the percentages would vary based on industry type (software, services, pharma, etc)?

    Definitely think you are onto something here, as revenue, profits and customer/employee satisfaction are key drivers to the success of any small/medium sized business.

    Thanks for posting.


  3. avatarGeoff Vincent

    Hi Ryan, sorry for the tardy reply. These recommendations are largely based on my own experiences. I was a member of a leadership team for 10+ years and saw variations of goals/bonuses throughout that time. Presented herein is what I believe is the best overall approach, specifically, it worked to achieve the best results for the company.

    As for other industries: I have predominantly worked in B2b services (courier, publishing, business information) so I can’t say from experience if my approach should be substantially different for other industries. But if I had to place a bet I’d say, directionally, yes they should apply to most other industries because I can’t envision any industry that shouldn’t value revenues, profit, employees and customers. After that, its tweaking the percentages.

    All the best, Ryan


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