Comp structures for company operators/COOs/2nd in commands?

October 31, 2025

by a searcher from Arizona State University in 7373 E Doubletree Ranch Rd #200, Scottsdale, AZ 85258, USA

I'm in the final stages of hiring on a COO to run most of the day to day of the business and I'm wondering what market comp structures are for positions like this. Company revenue is $5.5mil and around $1.1mil EBITDA. Considering something like a $200k base plus a small short term bonus plus and a long term incentive. The long term incentive would be a % of upside created over 4-5 years (possibly upon exit). For long term incentive, I've heard the range of 5-15% of upside. Based on the company size, what are some base, bonus, and long term incentive structures that are common in the market? Backstory, I acquired the business in 2019 after a 2 year self funded search. I paid off the SBA loan last year and want to step back and have an operator take over running most of the business after a transition/training period.

Reply by a searcher
from University of Virginia in Hong Kong

^redacted‌, Thanks for the tag. ^redacted‌, Your thinking on the structure (Base + ST Incentive + LT Incentive) sounds reasonable. It's quite a typical structure. Devil though is in the details. I made some changes to the model when I moved from Corporate Jobs to Business Ownership... to incentivize sense of ownership / empowerment / significant financial improvements ST / LT. Here are some thoughts... 1. Base set based on a) market value of position, b) lifestyle of the person. Latter is important so the person and family are not under stress. If someone is willing to take a cut - less common but happens - on a) and b), I more than make up by increase #2 and #3 below. $200k seems reasonable given size of business and role expectations. 2. Annual Variable Comp. Target at 20-40% of Base for CXOs and 30-50% for CEO (higher if the person is taking lower on #1). A significant portion (say 20-40%) on qualitative/strategic metrics based on strategy. Rest on pure financial metrics with an accelerated curve over a certain threshold. 3. Long Term Incentive. 5-15% of upside sounds fine. Another way to think about is % of Base. Typically 2-4x Base should be in play (for illustration, if the Base is 200k and current Equity Value is $5m, so that works out 8-16%). I prefer if the person buys in at least some share upfront or commits to buying over time. Builds in the co-owner mindset and makes it easier for me to manage. So my structure is typically: a) co-investment, b) time-vested, c) performance-vested. Which adds up to the % I allocate as above. One key issue on LTI is if you give shares, Exit/Liquidity becomes an option. So either have some sort of buy-back or assisted-sale or instead a cash incentive model as opposed to pure equity. Hope this helps!

Reply by a searcher
from INSEAD in Vancouver, BC, Canada

Sorry if this sounds basic, but... make sure incentives are aligned. Make sure he/she feels like an owner. I'm not sure I'd tie anything to exit unless that's a deal sweetener because it's not so tangible. Don't make the candidate feel like "you're making too much money" --> that's probably the best way to get him to disengage.

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