Incentive Plans for Startups

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Incentive Plans for Startups Powered By Docstoc
					Incentive Plan Seminar
              Mark MacLeod
                    April 2010




                startupcfo.ca
                @startupcfo
                                     Agenda
     Incentive Compensation
     • What does incentive mean?

     • Issues

     • Suggestions

     • Bonus Plans

     • ESOP

     • Questions




© 2010 StartupCFO Enterprises Inc.
                                                 Incentive Comp
     Incentive:

         any factor (financial or non-financial) that enables or motivates a
                             particular course of action.




© 2010 StartupCFO Enterprises Inc.
                                     What Motivates You?
     Depends….




© 2010 StartupCFO Enterprises Inc.
                                                                             Incentive Drivers
                                                        Investors Founder    Execs   Team

                                     Motivators
                                     Fame                  J        J         K
                                     Fortune               J        J         K
                                     Power                 J        J         K
                                     Autonomy              J        J         J       J
                                     Work environment                         K       J
                                     Peers                                    J       J
                                     Great Work                                       J
                                     Advancement                              J       J
                                     New Skills                                       J

                                     More Funding          K
                                     Growth                J        J         J
                                     Speed                 J        K
                                     Exit event            J        K         J

                                     Ownership            High     High      So So   Low

                                     Frequency            Few     1 or few   Few     Many

© 2010 StartupCFO Enterprises Inc.
                                                 Issues
     Structuring Incentive Plans:
     • Who designs them vs. who is impacted

     • Where to focus? Strategic vs. Practical

     • Cause and effect

     • Clarity

     • Alignment

     • Culture

     • Inconsistency

     • Frequency
© 2010 StartupCFO Enterprises Inc.
                                                        Suggestions


     • Start with practical, non-financial incentives

     • Make goals clear and tied to individual / team actions

     • Annual goals and quarterly goals

     • Communicate consistently & regularly

     • Reward excellent results and those people who
       make them happen



© 2010 StartupCFO Enterprises Inc.
                                                     Bonus Plans
     Who, When, Where, Why?
     Who: Senior execs, Department directors, people with quotas & /or
     quantifiable time-driven targets

     When: Annual, based on company & individual performance, spot
     grants can be used

     Where: After minimum revenue or break-even

     Why: Reward quantified short term performance




© 2010 StartupCFO Enterprises Inc.
                                                             Bonus Plans
     How Much?
                                                  % Base
                                     Founder CEOs  0 - 30
                                     CEOs         30 - 50+
                                     CxOs           30+
                                     VPs           15 - 25
                                     Directors     10 - 20
                                     Managers       0 -10




© 2010 StartupCFO Enterprises Inc.
                                                         Bonus Plans
     Mechanics
           Bonus = Corporate Performance * Individual Performance * Base
           Salary %.


           Bonuses will be paid twice yearly, at the discretion of the CEO.
           Bonuses will only be paid if corporate AND individual performance
           are 50% or higher and the company is profitable.




© 2010 StartupCFO Enterprises Inc.
                                                           ESOP
     Who, When, Where, Why?
     Who: Depends. Everyone? Admin? Senior team?

     When: At time of hire. Spot grants & annual top ups

     Where: Anytime after ESOP in place

     Why: Reward long term performance




© 2010 StartupCFO Enterprises Inc.
                                           ESOP
        How Much?
        Senior Management - % of company
        Non-founder CEOs - 8 - 10%
        Founder CEOs - 0 - 3%
        COO / President - 3 - 5%
        CFO - 1 - 3%
        CTO - 1 - 3%
        VPs 0.75 - 1.5%

     Team - % of base




© 2010 StartupCFO Enterprises Inc.
                                                                                                ESOP
        Benchmarks
                  Role                           % of Base   Role                   % of Base
                  Admin                                 6%   Junior marketing             21%
                  Analyst                               3%   Operations, Sys Admin        18%
                  Community Manager                    12%   Ops Lead                     22%
                  Controller                           13%   Product Manager              31%
                  Designer                              6%   QA                            5%
                  Developer                            22%   QA Lead                      11%
                  Director, Biz Dev                    32%   Sales Engineer               18%
                  Director, Engineering                36%   Senior Dev                   16%
                  Director, Marketing                  23%   Senior Dev / Team lead       19%
                  Director, Operations                 29%   Senior QA                    24%
                  Director, Product Management         56%   Support                       7%
                  Director, R & D                      43%   Systems Engineer             21%
                  Junior Dev                            8%   UX Designer                  33%


© 2010 StartupCFO Enterprises Inc.
                                                     ESOP
        Issues
        •Top heavy                   President        5%
                                     CFO              3%
        • Valuable?                  VPs              3%
                                                     11%
        • Unfair rules
                                     Everyone else    4%
        • Early exercise                             15%




© 2010 StartupCFO Enterprises Inc.
                                                           ESOP
        Suggestions
        Align grant with real contribution & role impact

        Make them real!

        Follow standard structure

        Vest everyone on exit

          Voting Trusts, buyback rights




© 2010 StartupCFO Enterprises Inc.
                                     Questions




© 2010 StartupCFO Enterprises Inc.

				
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Description: A presentation I gave recently on incentive plans for startups, including audio benchmarks on bonus and option grants