<aside> <img src="/icons/arrow-right_orange.svg" alt="/icons/arrow-right_orange.svg" width="40px" /> From the Pay Your Top People

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1: Variable vs. Fixed

<aside> <img src="/icons/square-one-fourth_orange.svg" alt="/icons/square-one-fourth_orange.svg" width="40px" /> Terms

Fixed: set in advance and paid in cash.
Variable: incentives paid out if certain goals are met.

Examples

Fixed: Salary
Variable: Performance-Based Bonus

Context

On average, the leadership of Russell 3000 companies (3000 largest companies in the US) receive 82% of their compensation as variable pay, with the remaining portion allocated as base salary (a fixed amount).

In SMBs, its far more common for this ratio to be closer to 50/50.

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2: Individual vs. Group

<aside> <img src="/icons/square-alternate_orange.svg" alt="/icons/square-alternate_orange.svg" width="40px" /> Terms

Individual: Incentives based on how a person performs
Group: Incentives based on how the entire company performs

Example

Individual: Project bonus
Group: Bonuses based on a company’s EBITDA

Context

According to Harvard Business Review, the average balance for compensation is 29% based on individual performance and 71% on organization performance. The ratio is usually determined based upon the the emphasize of the company’s focus on personal accountability versus organizational results.

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2: Equity vs. Cash

<aside> <img src="/icons/square-two-fourths_orange.svg" alt="/icons/square-two-fourths_orange.svg" width="40px" /> Terms

Equity: stock, paid out in the longer term, makes the equity-holder a part owner of the company
Cash: could be made up of salary and bonus

Context Harvard Business Review analysis showed that in Russell 3000 companies, on average 41% of senior executive compensation is paid in cash, and 59% in equity.

However, in SMBs, this is likely to be weighted to more in cash.

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4: Short-term vs. Long-term

<aside> <img src="/icons/square-three-fourths_orange.svg" alt="/icons/square-three-fourths_orange.svg" width="40px" /> Terms

Short-term: paid within that year.
Long-term: paid in several years.

Examples

Short-term: Annual bonus
Long-term: Equity

Context

According to ****Harvard Business Review, “on average, 28% of senior executives’ variable compensation is paid the year it’s awarded (or immediately thereafter), and 72% is paid in future years.”

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<aside> <img src="/icons/arrow-right_orange.svg" alt="/icons/arrow-right_orange.svg" width="40px" /> Read Next:

The 4 Dimensions by Industry

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About Matt

Matt Schnuck is a serial entrepreneur, investor, advisor and content creator focused on EQ, entrepreneurship and building modern holding companies.

<aside> <img src="/icons/globe_orange.svg" alt="/icons/globe_orange.svg" width="40px" /> www.mattschnuck.com

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