My firm is medium-sized multifamily and commercial portfolio that expands across Western Canada and the United States. We have always been family owned and run, taking on one or two investors throughout our history but now we want to scale up. We have the opportunity to hire an expert who we think will add a lot knowledge and could help us grow significantly faster. The issue is, at his last job he was being compensated in the early 7 digits and we can’t afford to pay that.
What we would like to do is come up with some sort of profit sharing or target based compensation. We could base it on him hitting certain IRR's or him being given chunks of ownership in new purchases or developments. This is not something we're used to doing as we've always tried to keep things as tightly held as possible.
Any tips on how we can structure the compensation?
Boise, ID · Member since 2018 · 203 posts · 188 votes
4y
I always like the idea of giving a base salary that is barely livable for the employee. Then add incentive pay that is based up an easily measured metric (your idea with IRR targets is good) or a % profit share on each project.
This creates a win/win. If he makes early 7 figures because the projects are doing great, you don't care because well, the projects are doing great and you own a larger percentage than he does.
It also self selects against employees that are sub-par performers. Nobody wants to have a barely livable wage, so low performers typically won't accept this type of compensation at all. They want large guaranteed salaries with small kickers added for top performance (which they know they probably won't attain).