Paying a General Manager to manage day to day operations

January 05, 2024

by a searcher in San Francisco, CA, USA

for a sizable $2 million revenue company what different ways GM can be/should be compensated. Would you give up your equity for incentivizing him to play long game or fixed salary plus handsome bonus ? How much bonus is reasonable.

This will be a promotion from Flat monthly pay with title of Director Operations.

Also want to understand how do you put guard rails so they cannot take (mis)advantage of the power.

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Reply by a searcher
from Millersville University of Pennsylvania in Washington Township, NJ, USA

^redacted‌ thanks for tagging me. I'm not a "traditional" searcher. I'm self funded and I plan to hold my businesses indefinitely. So giving up equity to someone else who is doing it as a job doesn't necessarily make sense to me. That being said as I've considered how I might do something like this it would definitely involve a profit share, which is the closest I've come across where the GM has an incentive alignment to take care of the margin, I'm a big person on culture and people, and believe that customer service reputation is everything in life and business, so for me internal metrics about the team and client satisfaction are also important. So I don't want a GM who is cutting costs no matter what just to juice their own pay and compensation, so it would have a target with contingencies for and maybe even extra bonus opportunity for achieving proper targets on those metrics as well.

Again all hypothetical as I don't have a business with a general manager right now, so hopefully you get some answers with people with more direct experience.

Reply by an investor
from University of Illinois at Urbana in Chicago, IL, USA

Thanks ^redacted‌ - Obviously, it depends on a lot of things. $2MM revenue is not likely to be a position for an experienced exec who would want high base, sizeable bonus, equity, severance, etc. The simple math of "market" base plus a bonus for somewhere between 20-50% of salary may make the most sense, but really hard to say given info provided. You can always give equity or synthetic type of upside down the road if you want and it makes sense. In our case, we would usually be looking for someone who either is, or could be CEO of a dynamic, growing business and using equity (either out of the gate or down the road) is a tool to attract and align. But here it seems base + bonus based on performance and other goals / objectives prob makes the most sense. I would recommend you read the Jack Stack books (Great Game of Business, etc.), etc. as he goes through in detail some thinking on topics like this. You may not (I do not) agree with him about everything, but he has some guide rails and helps you understand and think through.

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