Incentive Systems Design

Are you trying to ensure your key employees don’t jump ship? Many RIA owners struggle with how to reward and retain top talent without giving away actual ownership in the firm. The good news is that there are creative tools available that give employees a sense of participation in the firm’s growth while allowing you to maintain full control. One such tool is the use of profits interests. This structure gives employees the ability to participate in the future upside of the business without handing over any current equity value or management rights. In practice, it means they only share in growth from the point of the grant forward, which makes it a flexible and appealing way to reward loyalty and long-term performance while keeping ownership clean. Another approach that has become popular is phantom equity. Phantom equity mirrors the economics of actual equity but does not make the employee a legal owner. Instead, it promises cash payments tied to the value of the firm or its revenues at some future date. Employees feel like owners because their financial rewards rise as the firm grows, but you avoid the complications of actually issuing units or stock. Also, some firms turn to bonus compensation triggered by a change of control. This means that if the RIA is ever sold, certain employees are rewarded with a cash payout tied to the sale proceeds. For employees, it creates a clear incentive to stay engaged and help drive growth leading up to a potential transaction. For owners, it creates a retention hook that keeps the team committed until the moment the firm’s value is realized. These structures not only align employee incentives with the success of the firm, they also create a culture where key people feel they are truly invested in the future. The important part is getting the design right so that the plan motivates your team, protects the firm, and is tax efficient for everyone involved. We help RIAs structure these kinds of programs. If you are looking for a way to reward loyalty, retain top performers, and strengthen the long-term stability of your firm, now is the time to explore these options. Let’s talk about how to tailor an incentive plan that works for your business and secures the future of your most valuable asset—your people.

Plenty of firms have ample data capacity, but few reap the rewards of all this horsepower. The culprit isn't technology, but something far more human: incentives. It's an endless case of history repeating: The tools are in place, the data abundant, the algorithms sophisticated—but the human element of motivation lies neglected. And somehow, everyone wonders why the magic isn't happening… Some may wave this away with platitudes about how "data should be everyone's business." But the hard truth is: unless being data-driven is in everyone's interest individually, it won't be collectively. The result of not dealing with incentives properly is organizations rich in theoretical capacity but poor in practical execution. It doesn't work when executives champion "data-driven cultures" while judging performance on gut feel and short-term wins. Or when bonuses reward quick hits and reinforce silos over collaborative data sharing. Or when algorithms challenge intuition, but the organization still chooses the safe harbor of "business as usual" (after all, no one gets fired for ignoring a machine). Solving this demands that leaders craft systems that reward information sharing and evidence-based decision making. This reward doesn't need to be monetary. On the contrary, cultural incentives—data-driven behavior, lived through example—will outweigh and outlast monetary incentives anytime. Lived culture—not posters on walls or values in employee handbooks—is the organizational gravity that pulls behavior in consistent directions when no one's watching. It's the sum of countless daily decisions, the choices people make when trading off competing priorities. Many leaders mistake culture for communication, believing that if they talk about data enough, a data culture will emerge. That's an illusion. Culture forms in the shadow of daily actions, shaped by what gets rewarded, recognized, and repeated. Real cultural change starts when leaders make visible sacrifices for the behaviors they preach—when they share their own data, admit their own mistakes, and publicly change course based on evidence that challenges their intuition. When incentives align, data's promises materialize. Insights drive investment decisions, propel innovation, and streamline operations. Given the right rewards, employees across all functions will harness technology's potential—turning data from corporate buzzword to business reality. Rich datasets and powerful processors only create value when humans are moved to use them. And nothing moves humans like well-designed incentives—the invisible hand that shapes the visible future.

Designing sales incentives might be the most consequential chess game finance leaders play. No matter how carefully crafted, even the best plans trigger unintended consequences. I've witnessed this repeatedly: Cap commissions → Sales reps push deals to the next quarter New logo bonuses → Reps sacrifice deal size and profitability for quantity Quarterly targets → End-of-quarter discounting frenzies Salespeople are masters at playing the game; no matter how you set the rules, they'll find a way to win. Here's a powerful technique I've developed to identify these blind spots before they become costly mistakes. Upload your draft incentive plan to an AI assistant with this specific prompt: "Review this sales incentive plan as both a behavioral economist and an experienced sales leader. Identify potential unintended consequences this structure might encourage. Specifically: - How might reps optimize for maximum compensation in ways that harm the business? - How might this affect which customers reps prioritize and how they position offerings to them? - How might this affect deal timing, pricing, and product mix? - What team dynamics might emerge (competition vs. collaboration)? - What specific metrics might be manipulated?" For deeper insight, engage in a back-and-forth discussion about predicted behaviors and potential safeguards. Challenge the assumptions and push for concrete examples. This approach has repeatedly revealed critical blind spots in incentive design, the kind that don't become apparent until they've already impacted your bottom line. Every incentive is a signal. Make sure yours isn't signaling in unexpected directions. Happy to discuss over DMs all things that helped us create a solid sales incentive design :) #cfo #fpna #salesincentiveplanning

Incentives are a powerful driver of outcomes. How finance can use incentives to drive profitability. One of the most overlooked truths in finance is also the most powerful: Incentives shape behavior—and behavior drives outcomes. As finance leaders, we aren’t just stewards of cost control and forecasting, we are architects of incentive structures that guide decision-making at every level of the business. Whether you're aiming for revenue growth, cost efficiency, operational excellence, or innovation—incentives are a strong strategic tool. Here are three examples of finance-driven incentives: 1.) Sales Compensation Design → Incentive: Shift from revenue targets to a mix of revenue + margin goals. → Outcome: Steers reps to sell profitable products, not just expensive ones. Action Step: Analyze historical deal profitability and rebalance comp plans. 2.) CapEx Allocation → Incentive: Tie project funding approvals to post-implementation ROI → Outcome: Drives accountability and prioritizes high-impact investments. Action Step: Introduce a funding stage gate that increases budgets based on milestone progress. 3.) Departmental Budgeting → Incentive: Offer shared cost-savings bonuses to cross-functional teams. → Outcome: Breaks silos, promotes efficiency, and encourages collaboration. Action Step: Establish KPIs for joint cost initiatives and track progress monthly. When businesses align incentives with strategic objectives, it drives behaviors that support core business goals and avoids creating silos or short-term thinking. Some tips to successfully align incentives with strategic objective: 1.) Make Them Measurable: Vague incentives lead to vague results. Use clear metrics with defined timelines. 2.) Review Frequently: What works in Q1 may misfire in Q3. Reassess incentives as market dynamics evolve. 3.) Test Before Scaling: Pilot incentive programs in one unit before rolling them out company-wide. Some of the risk to be careful of that I've seen companies fall into: → Misaligned Incentives: Rewarding speed over quality. Mitigation: Design performance metrics to include quality-based KPIs. → Gaming the System: Hitting short-term targets without long-term value. Mitigation: Use rolling targets and trailing performance metrics to reward sustainable impact. → Culture Damage: Individual rewards in team-based environments. Mitigation: Mix team and individual incentives thoughtfully. Finance leaders who master incentives become strategic growth catalysts. When you design incentives intentionally, you do more than shift numbers, you change behaviors, outcomes, and the trajectory of the business. Please share your thoughts on finance-driven incentives in the comments. Follow me Beverly Davis for more finance insights. If you need help with finance-driven incentives for your business DM me. #Finance #Leadership #BusinessStrategy #OperationalExcellence #BehavioralFinance #PerformanceManagement #Incentives #KIPs #Profits #Sales

Melissa had built a small and mighty architecture firm. But last year, they barely broke even. She was doing everything she could: leading projects, mentoring her team, handling clients and still felt like the only one carrying all the weight. “I love my team,” she told me, “but sometimes it feels like they don't care about the success of the firm.” That’s when we changed the incentive structure. Melissa didn’t just want employees. She wanted allies. So we built a simple profit sharing system, one that rewarded smart decisions, empowered her team, and kept them focused on the right goals. The results? ✅ Projects finished more efficiently ✅ More conversations about scope and margin ✅ Team buy-in like never before Melissa isn’t just paying people more. She’s building a team that thinks like owners. 👇 This week’s story is for firm owners who feel like they’re doing it all alone and are ready to change that.

Aligning Rewards with Business Strategy in Times of Change When everything’s changing, your compensation strategy should too. Mergers, AI adoption, new markets, cost-cutting: Today’s business landscape demands that reward systems evolve with it. But too often, rewards programs lag behind the updated business strategy. Annual bonuses, legacy job architecture, and old salary structures don’t reflect the agility, collaboration, or innovation you need. Here’s the shift forward-thinking companies are making: 1 - Moving from tenure-based pay to skills- and impact-based rewards 2 - Aligning incentives with transformation milestones (not just EBITDA) 3 - Offering project-based bonuses tied to strategic initiatives 4 - Recognizing cross-functional collaboration, not just individual achievement If your business strategy has changed, and your rewards haven't. you’re sending mixed signals. Employees take their cues from how you reward: * Want innovation? Reward calculated risk-taking. * Need speed? Recognize rapid execution and iteration. * Driving growth? Incentivize scalable, cross-functional team impact. Make sure your rewards, especially your incentives, are pointing your people in the direction you want to go. #TotalRewards #BusinessStrategy #HR #Leadership #IncentiveDesign #FutureOfWork #bonuses #Compensation #CompensationConsultant #WorldatWork #SHRM

👩⚖️ What happens when a law firm pays its lawyers to use AI? Shoosmiths is finding out — with a £1M incentive. YSK: Shoosmiths is offering a £1m bonus pool if staff collectively hit one million Microsoft Copilot prompts in the next financial year. The firm says the initiative is designed to embed AI into everyday legal work and drive firm-wide change around innovation. What's happening? Shoosmiths' million-pound AI incentive reveals a profound shift happening across professional services. While the surface goal is tool adoption, the underlying strategy tackles several fundamental challenges: 1. First, this addresses the traditional reluctance of billable-hour professionals to adopt efficiency tools. By tying financial rewards directly to AI usage rather than just outcomes, Shoosmiths circumvents the inherent conflict between efficiency and revenue in professional services. 2. Second, the collective nature of the bonus (requiring firm-wide participation) transforms technological adoption from an individual choice to a shared responsibility. This cleverly uses social dynamics to accelerate change resistance that typically plagues law firms. 3. Most significantly, the specificity of "four prompts per day" suggests Shoosmiths has already quantified the minimal effective dose of AI integration needed to drive meaningful change. They're not seeking maximum usage, but rather consistent integration into daily workflows. The broader implication? We're witnessing the emergence of explicit behavioral economics in professional upskilling - moving beyond passive training offerings to actively engineered adoption through carefully calibrated incentive structures. This signals a future where firms increasingly design compensation systems around specific behavioral metrics rather than traditional performance outcomes. I won't expect any less from Tony Randle and team :)