Compensation is the most powerful lever for shaping leadership behavior.
In investor-backed companies, misalignment between incentives and strategy produces predictable dysfunction. The remedy is straightforward but requires discipline: design systems that pay for the outcomes the investment case requires and communicate those systems with clarity.
A robust design mixes financial and strategic metrics. Growth and profitability must sit alongside indicators of durability such as customer retention, quality, and safety.
Weightings should evolve as the company moves from turnaround to expansion to pre-exit preparation. Annual bonuses drive focus on near-term execution. Multi-year equity aligns leadership with value creation over the full hold period.
Ownership is the anchor. Equity participation builds an owner’s mindset and encourages tradeoffs that favor long-term value over cosmetic wins. But equity must be structured thoughtfully. Consider vesting that rewards both time and performance, hurdle rates that reflect risk, and clawbacks where conduct damages the enterprise. Transparency about the why behind each feature builds trust and acceptance.
Communication is an operating discipline. Leaders perform best when they know precisely how success will be measured. Publish the scorecard, review it frequently, and tie recognition to it publicly. When results disappoint, diagnose whether the incentives pointed people at the wrong target before assuming capability is the problem.
Well designed compensation converts strategy into culture. It makes daily choices coherent with long-term value creation. In private capital, where time is scarce and accountability is high, that coherence is priceless.