By LIZ CHRISTO at Dear Stage 2
DEAR STAGE 2: Do you recommend variable compensation for members of the marketing team? If yes, what has worked for you to drive results and create alignment? ~Founder aligning incentivesSubscribe
DEAR FOUNDER ALIGNING INCENTIVES: We brought in 2 stellar CMOs to help us answer this critical question. Kirsten Newbold-Knipp, who led marketing at companies like Fullstory, Convey and BigCommerce and Shane Murphy-Reuter, the CMO at Webflow, and former marketing lead at ZoomInfo and Intercom.
Our collective answer? A resounding YES!
We’re glad to hear you started with the goal of creating alignment. Too often we see marketing variable compensation aligned to a TOFU metric that creates friction with Sales. Instead, we need to approach this with a more holistic view of the company. But before we dig into that, there is one exception…
At the very early stages of a company, pre-product-market fit, you are on a journey of exploration, where you generally don’t see stable or predictable metrics. If this is the case, it’s not really fair or reasonable to set a metrics-based target while you’re still figuring out the right baselines. For very early companies 1) equity, 2) a small close knit team, and 3) well-defined quarterly goals should solve the alignment issue.
Once you’ve reached product-market fit and are beginning the go-to-market fit journey, you likely have the data to inform baselines for (at least) a handful of critical metrics, and can now use variable compensation as a tool to motivate and align.
With that stage distinction in mind, we aligned on four guiding principles to drive impactful variable compensation plans for marketing – a huge thank you to Kirsten for the thoughtful structure:
- Meaningful to the individual
- Aligned to business outcomes
- Clear and measurable
- Influenceable or controllable
Let’s break these down together:
- Meaningful to the individual: There is a balancing act between base and variable compensation. If the variable amount is too low (say <10%), it gets lost in the noise. Kirsten advises tying 20%+ of total compensation to variable in order to actually drive behavioral change.
- Aligned to business outcomes: This is where the *right* metric comes into play. Kirsten recommends tying variable compensation to a key department or company goal that is close enough to revenue or retention to make a difference in the success of the business. Shane agrees saying, “I would avoid paying variable against a metric that is too much of a leading indicator — like lead volume. You will incentivize the team to potentially hit that number but drop the quality of the lead they are driving.”By focusing on key metrics that drive business outcomes you avoid the risk of misalignment across teams.
- Clear and measurable: There is nothing worse than setting a goal, getting to the end of the quarter or period, and realizing there is disagreement on the outcome. There should never be a question of whether the person did or did not hit the metric. Select a metric you can measure, that has 2+ quarters of steady state data, and ensure that it’s reported on regularly and publicly to create accountability.
Ideal in our minds? Qualified Pipeline or Bookings numbers. And for new teams/roles you might consider an MBO target to build the right behaviors while the baseline metrics are being defined.
For example: Hire 2 critical roles, Run X experiments per week to increase pace of experimentation in the organization, etc… - Influenceable or controllable: Metrics work to drive alignment when they create engagement across functions to achieve them, but also empower an individual to have outsized influence over the results. People need to feel that they can impact these metrics and actually control the outcome. If you base everyone’s variable compensation on a top-line company revenue target, it will lose meaning for the individual employee — they will start to think about that part of their compensation as a given.
As the marketing team grows, we recommend breaking variable compensation down by both level and role: Shane advises “For marketing leadership, I would typically have it paid out against attainment against overall incremental ARR target. However, if a team is focused purely on one part of the business, I’d narrow it.” Shane goes on to say, “The self-serve growth team would be targeted just against the self-serve number. Or, the team owning customer acquisition would be targeted only against the new business ARR number. ” And Kirsten adds, “Your social media marketer might not feel that a revenue target is motivating — but your Enterprise Campaigns manager who works on ABM with their sales partners should find both pipeline and revenue targets to be in their influence.”
Finally, I would encourage everyone to give their teams more say in setting these targets. There is an interesting interplay between tops-down and bottoms-up goal setting. If a person or team feels that they contributed to the goal setting process, they will feel more ownership over that number, and surprisingly, they often set more aggressive goals for themselves. Have the leadership team define the big-ticket strategy items for the year/quarter, and then take those to team members for their input on the specific short-term goals and projects that can contribute to the desired outcomes.
