Is it time to reconsider bonuses for startups? – Mark MacLeod

February 15, 2023 - Mark MacLeod

Is it time to reconsider bonuses for startups?

I have long had mixed feelings about bonuses for startups. When I use the term “startup” I am not just referring to the super early stage. But really that stage of growth, including scaling, when companies are burning money chasing outlier outcomes.

Here are my issues with bonuses:

Staff just expect them. The discussions around the exec table is often about how to give some without disappointing. This is the exact opposite intention. They are meant to reward extraordinary performance. It should feel great to get a bonus. Instead, they are expected and staff (at all levels) really just think of bonuses as part of their salary.

Bonuses are based on forecasts. As someone who has created more than his fair share of startup forecasts over the decades, I can confirm that most forecasts are really fraudcasts. We just don’t know. We create assumptions on top of assumptions. In good faith. But in reality, we don’t know what is possible.

My concern with bonuses as they relate to forecasts is that they create a fixed mindset. Management expects that we will achieve this (largely fictional) forecast. Staff expect to be paid based on it.

This can de-motivate when targets are missed (which is most often the case). Ironically, it can also cause people to play it safe and maximize their bonus by hitting the targets without shooting for the moon and taking on more risk chasing an even bigger result.

While bonuses can appear at all staff levels, the biggest bonuses are reserved for leadership. Going back to the purpose of bonuses (to reward extraordinary performance), if you are a leader in a startup, you are expected to perform extraordinarily all the time. ie. extraordinary performance is in fact ordinary! Your incentive/ upside is really in the form of stock options.

A far simpler approach would be to just pay strong, competitive salaries and have all additional incentives be in the form of stock.

Look inside your company. Do you pay bonuses? If so:

Are they having the intended impact?

Are they driving extraordinary performance? Performance over and above what you expect from the role?

Do the targets that your bonuses are based on represent extraordinary performance?

If not, maybe get rid of them. Now is the perfect time as we are in a period of cost-cutting. Pay great salaries and demand great performance. That’s it.

Photo by Alexander Mils on Unsplash

Your journey is never done

Sign up to my newsletter and join an inspired community of leaders who realize that the journey to achieving their full potential is never done.

    If you’re curious about my coaching and deal work you can learn more here.

    back to blog

    Latest Blog Feed

    The case for not deferring happiness

    When is the last time you were truly “happy”? When was the last time you experienced real “joy”? I asked one of my CEOs this recently. He talked about the day he got married and when his kids were born. […]

    read more

    When to borrow to grow your business

    I am often asked about when or if a company should take on debt to help grow their business. Here are my thoughts: Sources of Capital There are three source of capital to grow your business: Revenue – well, actually, […]

    read more

    How venture capital works

    Do you understand how VC funds work? If you want to raise VC, it’s important to know this. Here’s how they work: Let’s take a $100M fund, called Acme Ventures. $100M is pretty small for VC funds these days, but […]

    read more


    Email :

    Follow me:

    Mark MacLeod ICF Member

    Send Me A Message