How To Incentivize Your General Manager/CEO - Acquira

How To Incentivize Your General Manager/CEO

If good help is hard to find, it’s even harder to keep.

Owners depend on their managers to maximize productivity and manage staff. A good General Manager knows every nook and cranny of a business. They will have ideas on how to improve a company, they will work to increase sales, and they will know how to motivate their team.

But how do you motivate the motivator?

After all, managers are the employees in charge of guiding your company to completing its strategic goals. So, effective incentive plans are a great way to motivate your team and make sure they’re happy and content.

Of course, there are any number of incentive plans that have been tried and tested. Indeed, a combination of plans can be used to create a robust compensation package that will ensure your managers stay on-board and motivated.

When To Bring On a GM

But before you can incentivize a GM, you need to find a good one.

We’ve had a lot of success posting on national job boards like Indeed. We create a job profile for the business, making it anonymous if necessary. The posting spells out the roles and responsibilities, the size of the company, and the compensation.

It’s a good idea to bring on the General Manager as soon as possible. Ideally, you would introduce the GM to your staff on the same day you introduce yourself. This gives the GM a certain amount of authority and serves to minimize the shock of meeting a series of new bosses over a period of time by simply introducing a leadership team all at once. It also allows the GM to start building a rapport with the employees right away.

If hiring a GM before taking possession of the business isn’t possible, the next best option is three months in. The buyer can sit with the business for a period of time and see how it operates. The ins and outs of the business. Its weaknesses and strengths. That way, they’ll know what type of person will make an ideal GM, whether they’re sales-focused, technology-focused, hiring-focused, or focused on another aspect of the business.

A good GM can be found outside the company or within. It’s just about matching the skillset to the work. If there’s a natural candidate inside the organization, perhaps one that the previous owner thinks would be a good fit, then this can be a good option.

Someone who already works for the company is familiar with the business, they don’t need to be added to the payroll, they’re friendly with the other workers. Just make sure to inform them that it’s an interim position with the possibility of transitioning into full-time in the future. It’s also a good idea to make sure that any potential drama between an internally-hired GM and the rest of the staff is mitigated as soon as possible.

Keeping a Good GM

Once you’ve found the perfect candidate, whether it’s an inside hire or an outside hire, you have to ensure that they stick around and actively work to grow the business.

There are a number of different ways you can accomplish this through various incentives. Whether it involves the GM putting skin in the game through stock options or investments, whether it involves performance-based bonuses or simply recognition of the manager’s achievements, there are a number of ways to incentivize a good manager.

Performance-Based Bonuses

Offering performance-based bonuses to all workers is usually considered a best practice for making sure employees are satisfied at all levels. This helps reduce turnover and the costs associated with churn.

This normally consists of a base pay rate coupled with a variable pay rate that is specifically tied to the employee’s performance.

High-performing GMs are usually very receptive to this model of payment because it draws a clear connection between their performance and the performance of the company.

What performance metric you link the bonus to will depend on the industry. It can be tied to something like revenue or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or to non-financial indicators like product quality or customer satisfaction.

We generally recommend tying bonuses to something very clear, like gross profit. If it’s based on something like revenue, that can incentivize a manager to take a lot of unprofitable work. A measure like operating income is likely something the GM doesn’t have much control over.

Additionally, gross profit is a great metric to use to incentivize GMs because it’s simple. You can tell the manager they will receive “X” percentage of gross profit as their bonus. If you make the bonus 20-25 percent of their compensation, they will be extra motivated to reach the milestones you set.

Stock Options

Offering stock options to managers is another popular form of incentivization. This allows the manager to purchase shares of the company at a predetermined price.

Thus, if a company’s stock goes up, the stock option allows shares to be bought at a lower price. This can encourage the manager to even exceed performance goals, expecting these milestones to spur the company’s stock value higher, causing the value of the stock options to increase.

Cliff Vesting

Many companies will offer their employees equity as part of their compensation package. Like stock options, this equity represents partial ownership of the company and seeks to encourage workers to stay with the organization and to perform well.

However, it usually doesn’t make sense to give an employee stock until they’ve earned it and that takes time.

An employee becomes “vested” in a benefit plan once they’ve earned the right to receive benefits from said plan. Cliff vesting is when the employer sets certain milestones – usually specific dates – when the employee will receive that equity.

A four-year vesting schedule with a one-year cliff is very common. So, after completing each one-year cliff period, the employee receives equity. That process is spread out over four years.

Cliff vesting solves an important issue, as well. If you’re going to give a GM, say, 5 percent of the company as soon as they take the position, there’s nothing to stop them from leaving the next day with a stake in your business. Then you have to hire another GM and risk running into the same problem.

The alternative is to give the GM 5 percent of the company over five years, and every one year anniversary at the company, they get another percent of the business. So, any profits that are generated, after expenses, the GM gets one percent of them each year, up to five percent.

Also, if the business sells for more than it was purchased for, the GM stands to make five percent of the sales price.

Gain-Sharing Incentive Plans

You might consider gain-sharing as a team approach to management. In a gain-sharing system, the company looks to increase performance by boosting the involvement and participation of its workers. As the overall performance increases, employees share in the profits of the company.

Gain-sharing measures the company’s performance through a pre-determined formula. The company then shares whatever profits are had with all of its employees.

Compensation and management consultant Philippe Wallerich discusses the approach on his blog using, as an example, the famous Parisian restaurant Bouillon Chartier.

Bouillon Chartier has nearly 1,600 customers a day who come to enjoy its famous cuisine and its affordable prices. Indeed, the restaurant is largely known for its inexpensive plates, which makes it difficult to boost profits through price increases or upselling. So, the business’ strategic goals became increasing the number of customers and improving staff performance in the dining room and kitchen, according to Wallerich.

To help accomplish this goal, the company introduced a gain-sharing incentive plan known, in French, as l’intéressement.

The restaurant introduced a new VGS (Voluntary Gain-Sharing) program that both managed the team’s performance on specific key metrics and granted attractive bonuses over an extended period.

While you can read Wallerich’s report for the nitty-gritty details, the important part is that, in the end, the restaurant saw a positive impact. There was a 60 percent increase in meals per day and a 70 percent increase in revenue over ten years.

When creating a gainsharing program, a formula is created that measures performance against a baseline, usually a historic standard, in order to determine the amount of the gain. Wallerich breaks down his exact formula in the article, but he stresses that it’s important to choose a formula that is simple and easy to understand. Employees need to be able to predict what their bonuses might be and the performance metrics need to be clear and agreed upon by all parties.

Gain-sharing incentive plans are a way to encourage collaboration and involvement while enhancing corporate culture.

All employees stand to benefit from this type of incentive plan, but the management team can play an especially important leadership role. They can encourage teamwork, the sharing of ideas, and bolstering productivity to make sure the organization meets its performance goals.

Unlike vesting and stock options, gain-sharing is not focused on the company’s bottom line, but on operational performance and the positive attitude of the employees.

Case Studies

A Success Story

When Acquira bought Phoenix-based American Home Water, we brought a GM in on day one.

We knew that the company had two major issues from the beginning. On one hand, the company was lagging from a technical and operational standpoint. On the other, the company was losing some strong salespeople in the form of the previous owners, who were stepping away from the business.

This created a vacuum that we knew needed to be filled as soon as possible. We embarked on an exhaustive search process, spending hundreds of dollars to generate approximately 70 candidates. That pool was reduced to 20 potential GMs and we scheduled personal interviews with each of them. 

We eventually ended up hiring someone from a larger HVAC organization in the region. The GM had been largely responsible for building up the other organization. He was younger and more focused on technology.

He was able to come in and instantly build trust with the 30-person team while providing strong analytical support and strong moral support to the new owner.

That was a case of finding the perfect candidate. Someone who was young, hungry, and tech-savvy. We compensated the GM with a substantial base salary that was enough to incentivize him to help lead the company to success. He also receives a percentage of the company’s EBITDA.

A Less-Than-Ideal Situation

In another instance, Acquira bought a digital business a few years ago. A year after we took possession of the business, we decided that we needed someone with a really strong technical marketing background.

That led us to hire someone who was very busy, but had a lot of technical marketing expertise. We didn’t think the position would require them to end their other projects, but eventually, that caused the project to become less of a focus for them, and the business suffered as a result.

The mistake there was hiring someone who had a strong resume but the wrong mindset and the wrong availability. No matter what sort of incentive we offered them, it wouldn’t have worked. It just wasn’t a right fit.

The experience taught us that experience doesn’t always indicate a good fit. It’s important to find someone who is committed and has the right mindset for a challenging new opportunity. You need to find people who are hungry and ready to hit the ground running.

Conclusion

Of course, finding the right General Manager for your business is a process. It’s not a task that should be taken lightly. You need to find someone who believes in the business, will work hard to improve it, and make the lives of those around them better.

Once you find that person, making sure they are happy and content becomes paramount. They will become indispensable to the business, and incentivizing them to work hard and stick around is important.

After all, good help is hard to find, it’s even harder to keep.

Have you had any particular success stories incentivizing an employee? We’d love to hear about it in the comments below!

Of course, you can’t hire a GM if you don’t have a company to run. If you have any interest in acquiring a company, we suggest checking out our Acceleration Gauntlet for more information on how we can help you achieve that goal.

If you found this post useful, feel free to share it with your network.

Key Takeaways

  • Owners depend on their managers to maximize productivity and manage staff.
  • A good GM should be able to build trust with your team while providing strong analytical and moral support to the new owner.
  • In order to keep the perfect candidate, you have to create effective incentive plans to ensure they stick around and actively work to grow the business.

Leave a Reply

Your email address will not be published. Required fields are marked *