Creating a winning compensation plan: How to align people, pay, and performance

Fast Company

04-08-2025

When founders design compensation plans, they often take a narrow view, limiting performance-based pay to sales teams. This stems from the misguided belief that only salespeople are motivated by money. In reality, most people are driven by the opportunity to earn more through success. The problem isn't performance pay, it's the flawed assumption that it must come with little or no base salary.
It's time to rethink compensation with a simple principle: When the company wins, everyone should win.Let's explore how top organizations apply this across every discipline.
BE TRANSPARENT AND HIRE ACCORDINGLY
Through my decades of experience, I've seen that the more people are exposed to the real performance of the business, such as financials, headwinds, and tailwinds, the more engaged and aligned they become. Founders often hold these details too tightly, but employees, especially those drawn to startups, want the full picture. Nearly every conversation with team members reveals the same themes: communication is lacking and they want more transparency.
At the same time, not everyone is built for full transparency. Some find the realities of business too stressful, and you can't build for both. So, don't. Hire for a persona that can handle exposure to business realities.
As you get larger, you'll naturally de-homogenize. But by that point, you will have developed a highly aligned and performance-driven layer of management produced in these early aligned stages. I call this 'finding your people,' and when you can truly trust your leadership team to amplify your direction across the organization, you've found the lynchpin for success.
BALANCING THE GOAL EQUATION
Founders often communicate the company vision clearly, but few take the time to understand the personal goals of their team. Unless you've had an extremely focused methodology around hiring, there's no way to forge this artificially.
My advice? Go deep during the hiring process. Shift from a job conversation to a life conversation, and identify how personal incentives can tie to company goals. Do this as quickly as possible, but know it will be an ongoing process rooted in trust.
The questions you'll need to ask will push the boundaries of what most HR professionals would be comfortable with. These are often off-limits subjects within the workplace, but they need to be discussed to get to the heart of what matters to—and motivates—your team members. This is also why you, the founder, should be recruiting and having these conversations.
Ask prospective and new employees:
What do you want to achieve financially? And when?
How do you want to augment your skills?
What do you hope to achieve within your core relationships?
Start there, and then build on it over time. At In Revenue Capital, we use a framework called Tours of Duty, and the entire point is to recognize that most employees won't be with your company for a decade, but more like two or three years. How can you and that employee meaningfully impact those goals during the time you have together? Dig deep and get a little uncomfortable. Based on what you learn, you can now inform both their career roadmap within the organization as well as integrate their contributions toward key goals with the achievement of their personal dreams.
Without this, people focus only on tasks and metrics. Only when employees view the company's goals as a path to their own personal achievement will they be able to unlock the magical ingredients of drive and passion.
THE BUILDING BLOCKS
When you're doing these sorts of interviews, get as specific as you can. In my last venture, LeadMD, many of our younger employees hadn't yet thought about their long-term goals. However, by going through our 'Tour of Duty' process, they gained clarity—not just about their paths, but about themselves and their leaders. Because of this, even years later, real friendships persist. No one was simply an employee; they were people with dreams and aspirations who were all growing and helping one another, and because of that, company performance soared.
Eventually, goals will go beyond the scripted 'promotions' and expose that what they really want is to secure the financial future of their families, get married, or be better parents. Whatever goals are set, as a leader, your job is to help your team really examine them and map out what it will take to get there.
If a team member's goal is financial freedom (which is unsurprisingly popular), you can align it with company outcomes, like a liquidity event. Show them how equity fits in, and how hitting key milestones can earn them more. It's a powerful retention and motivation tool.
Some people will be more short-sighted, and that's fine, too. If they want to make half a million dollars in a year's time, outline what they need to deliver and structure a compensation plan that supports it.
Do this, person by person, and you'll find a team that truly cares and is genuinely invested because your goals are tied to theirs.
EVERYTHING DESIGNED FOR OPTIMIZATION
Ever hear the saying 'people do what they are incentivized to do'? Well, I've never found it to be false. The point of all of this is to not only incentivize the behaviors you want to see within your organization, but to go a step further and ensure those incentives also align with what people want to do.
I could write for days about compensation plans, but the crux of it all is this: There's nothing more fundamental to the success of a business than its employees. Truly grasp that mindset and adopt it. By doing this, you're investing in both your people and the business simultaneously, and there's no more valuable allocation of time and resources.