A while back I sat with a founder who had built something clever and was losing money while he did it. A product people clearly wanted, and investors who had been patient for longer than anyone likes to admit. This was a business on its way to something good, it just hadn't turned the corner into profit yet. He wanted to reward the people who had carried it this far, and he couldn't work out what to reward them against. He could point at revenue, but he could hit every revenue target and still be in the red. And he kept circling back to the same knot: how do you hand people a bonus when the investors who funded the whole thing are still waiting to see a dollar come back?
I've had a version of that conversation a few times over my 19 years in business, most often with founders whose companies are still finding their feet. Here is how I think about it.
Profit is the wrong hook, and not just because you don't have it
The instinct is to reward the thing you wish you had. You want profit, so you dangle profit. Or you reach for the share price, because you're listed and that's the number everyone stares at.
The problem is that your team can't move those numbers directly. A developer shipping a feature, a coordinator who saves a wobbling customer, neither of them wakes up and moves the share price. When you reward people for a number they can't influence, you don't motivate them. You teach them the reward is a lottery, and they quietly stop looking at it.
Reward the things that build the company, that your people can move
So what do you base it on instead? The small set of leading indicators that create the value everyone is waiting for.
For a business that isn't profitable yet, that might be revenue growth, a signed lighthouse customer, cash runway stretched by disciplined spend, or a product milestone that unlocks the next stage. When these happen, the company becomes more valuable and you move closer to the profit you don't have yet. And your people can see themselves in them. Someone can close that customer. Someone can protect that runway.
The board has a job here that often gets skipped. Sit down and agree which of these leading indicators really predict future value, and get that agreement in the room before you build anything. That short list is the spine of the whole plan.
Gate it, so it's affordable and you can defend it
This is where the shareholder worry gets solved, and it's simpler than it feels.
You don't promise a bonus. You open a gate. The company has to hit the health markers the board agreed on before a single dollar is payable. Miss them, and nothing pays out, at any level. Once the gate opens, each person's own measurable targets decide their share.
Do it this way and the reward stops being a fixed cost sitting on your balance sheet like a liability. It becomes a share of value that only exists once the value has been created. That is a very different conversation to have with a nervous board or a tired register of investors. You're not spending money you don't have. You're setting aside a slice of the upside your team just built.
The shareholder conversation is a story problem, not a numbers problem
I've watched companies get this right, and it always comes down to the story they tell.
If the reward shows up as one line of dollars and cents in a report, of course an investor who hasn't seen a return feels prickly. The way through is to design it so both sides move together. The milestone that triggers a payout, a big contract landed or the runway you just extended, is the same thing that lifts the value of what the investor holds. So when your team gets paid, it isn't money slipping out the door ahead of the shareholders. It's the proof that the value they have been waiting for just moved. You're not paying staff instead of investors. You're paying for the behavior that gets the investors paid.
One more thing, because it's the part people flinch at. Don't spread the reward evenly like jam across toast. In a small team especially, if your best person watches someone who is along for the ride collect the same reward, you've done damage you will spend a year repairing. Reward the people moving the needle, and let everyone see why.
Where equity fits
Cash for the short term, tied to this year's markers, works for the whole team. Equity is a different tool. It's how you hold your key people for the long haul and line them up behind the share price over years rather than months. In most businesses that sits with the people who really move enterprise value, usually your leadership. Keep the two apart in your head, or they blur into one plan that does neither job well.
The founder I sat with didn't need a more complicated plan. He needed permission to stop rewarding the number he wished for and start rewarding the ones his team could build. That is almost always where the answer has been hiding.
P.S. If your incentive plan is written so carefully that no one on your team can explain how they would earn it, it isn't protecting you. It's quietly telling everyone not to bother.
