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If everybody on the team has to say what their personal goal is, and they get to set it,

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and if they hit their personal goal, as long as it's aligned with the company goal overall,

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if they set that goal, they can set it as bigger as little as they want.

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What happens is that the social pressure of wanting to set good goals automatically

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self-cracks you.

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Welcome to the game where we talk about how to sell more stuff to more people in more ways and

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build businesses worth owning. I'm trying to build a billion-dollar thing with acquisition.com.

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I always wish pesos, muskenbuffet had documented their journey, so I'm doing it for the rest of us.

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Please share and enjoy.

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A good friend of mine in my building had a really, really interesting way of managing talent to get

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and drive higher performance than output. And so the reason I wanted to make this was because

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at the end of the day, every entrepreneur has the same problem, which is they need better people,

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and they need to get more out of the people that they have. And a lot of that comes from culture

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and training. But every once in a while, you stumble upon a process that has teeth.

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And so I think it's super cool because it is reinforced through multiple different psychological

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levers, and it's got really cool stuff to it. So let's dive in. So one of the things that he shared

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with me that he did is that he has a level of variable competition. That's not new. It means that

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there's some level of performance, check marks, et cetera, that they have to hit in order to get paid.

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Makes sense. Now, the way that most companies do this, and I'll tell you that what we've done

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up to this point for us, is that in positions where that are not directly like sales, for example,

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it's very easy to have a commission structure, et cetera. But for, let's say, leadership and

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executive positions. And so this is important. If you're trying to build your, you know, your sole

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apprenticeship into an actual company that has values, you need to have people who are all lined

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in driving hard, like owners towards the same goal. And honestly, it's much more enjoyable that way.

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And so the way that we have split our things up to this point is that we do something called

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MBOs, which managed by objectives, which are for the company, and then also for the individual.

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So we usually split them 50-50s. So let's say we've got a leader who, let's say like a director

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of marketing, they're not going to like get a sale, but we know that they're in charge of all of

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the, you know, rain making for that particular business line, right? And so they might get let's say

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half of their, they might have a base, let's just use round numbers. Let's say they're making

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their targeted earnings is $200,000. We're going to give them $100,000 base and we're going to give

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them $100,000 of variable compensation, right? Now of that variable compensation that half,

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we split that again and half half of that, which would be 25% of their total cost, is going to be

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of whether the company grows overall. So if we hit x, y, and z metrics, they'll get, you know,

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of growth or new sales or profitability, then they're going to get those things, right?

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And the other half is going to be on whether they did something personally they've control over.

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So it might be adding a new channel or a new platform or creating some sort of process that we

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want to automate or bringing in a new x, y, z manager, right? Those would be things that they have

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complete control over that we can check box. Even if the business doesn't do well or it doesn't

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hit the goals of growth or just, you know, marginally grows, they can still get half of their variable

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come. So if you've got a hundred grand, they got that guaranteed and they've got 50 that as

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long as they do their all their stuff, they've got, and then they get to purchase being the upside

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of the business if the business overall grows, right? And so that is how we've done it up to this

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point. It's worked well, right? But what he presented was a different way that I really, really,

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really liked. And a key part of this is that the management by objectives and the things that we

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set, we set for our team, okay? So they don't have a choice in it. They just accept it or you know,

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they might try and negotiate a couple of terms, but that that's more or less how the compensation

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structure works, right? With the way that he sets it up is that every position has a level of variable

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compensation. And that level you can determine, you know, you can say you want it to be 10%,

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or you can be 20%, or it could be 50%, you know, it depends on the role, but maybe let's say a

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front line customer service role, right? Let's say 15% of their compensation variable. So if they're

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targeting, let's say $50,000 a year, then that would mean $7,500 would be potential to be variable.

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So that would be like whatever, $600 a month ish, right? Of their compensation is kind of in the air

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hung in the balance. And so here's the cool thing. What he does is that he says, this is the variable

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comp and you get to set the goal every month. So it's a 30 day rolling goal. And every month,

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they get to set the goal of what they're going to do. They have to show it publicly. So you get

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some social pressure in there, right? You also get autonomy because they're the ones who are picking

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it. And so here's what's cool is that if everybody on the team has to say what their personal goal is,

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right? And they get to set it. And if they hit their personal goal, as long as it's aligned with

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the company goal overall, like it, it's going to contribute to that goal, then they can make it,

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right? They have to obviously prove that it in some way furthers the overall division or

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department's goal. But as long as it's aligned with that, the extent to which and the amount

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that they have to hit because it's got to be quantifiable, right? If they set that goal,

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they can set it as bigger as little as they want. What happens is that the social pressure

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of wanting to set good goals automatically self-crafted. So you might think, well, what if they just say

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they get, you know, a half a percent improvement or something like that and they hit it.

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Cool. But the thing is, is that people on the team are going to be like, dude, come on. That's the

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goal. And then all of a sudden they raise it. But they raised it. No one else. And so they have

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complete autonomy and ownership over that goal. Now for you as an owner, what you can do, obviously,

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is let's say that you're targeted earnings for the person's 50,000 years. That's fine. You just

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take 15% and make your variable. So like they have the potential to earn the whole thing or they have

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the potential to earn somewhat less. Like don't worry about the variable comp. The the piece is that we

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have intermittent reinforcement, which is another way of saying variable reward for an employee. They

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have complete autonomy and they have social pressure and they have some level of competition. And

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this is really useful in roles that don't necessarily a directly, you know, tied to the bottom

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line like sales does and are more difficult to quantify. Right. And so this gives those roles

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the opportunity to feel like they're contributing to the overall growth of the company and have

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something in the balance that matters. So I wanted to share this with you because I thought it was

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really, really cool. We're going to be implementing stuff like this in some of our portfolio

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companies. But I thought it was just incredibly sexy. I didn't want to I didn't want to keep it

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from you because I think it's really, really cool because there's just so much psychology behind

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doing things this way. And it just allows everyone to participate and grow as employees within

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the company. And as a as a tangential tertiary benefit of this, your turn will go down because people

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will feel like they're making progress. Pretty cool. Right. It'll they'll feel like they're making

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progress in that they are growing and that they are challenging themselves. And that at the end of

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the day is what you want every workplace to fulfill for your employees. Now, whether they feel fulfilled,

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you have no control over. But if you can create an environment that increases the likelihood that

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they feel that way, given a normal human construct, I think that you're going to build a better business.

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you