📬 Eat What You Kill: How do you incentivize finance teams?

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Series A Stage CFO from Canada asked:

I have found that investing time in getting the incentive structure right for our sales & operations team has been an incredibly powerful lever (who would have thought!).

What are your views on performance-based compensation for the finance (and other shared service) functions? Can these be as powerful as in the case of sales & ops? Given the diversity of functions across these teams and the tasks within each person's role, how detailed would you get with designing the performance-based comp formula for individuals?

For a performance incentive to be effective, there must be a direct causal link between the performance of the individual and their compensation.

That’s easy for sales and operations people: hit this sales target, deliver this level of customer satisfaction, OEE, etc. And those are things that are easy to track through to improved profitability of the business.

The chain is not as direct for finance people (or any middle / back office function), which means this can be a tricky area. For senior members of the finance team, it is reasonable that they be tied to the outcome measures of the business, especially financial outcomes. Whether that be EBIT or something else.

This gets more difficult as you get further down the finance organization. While they do influence performance overall, it’s less direct.

So here is how I like to tackle it:

I like everyone in the bonus pool (not just finance) to have a portion of their bonus tied to the performance of the business (or their business unit) as a whole. This is a good way of promoting a ‘we’re all in this together’ mentality. And is a good way of developing a culture that cuts through politics.

But alongside that, I think it’s important people also have a portion of their bonus tied to personal objectives that are specific to their role. This ensures everyone is incentivized on things they can control.

The question is what mix? So, for a salesperson, you might want their bonus linked 80% to personal performance and 20% to company performance. So they are incentivized to perform on an individual basis. But it’s not totally ‘eat what you kill’ either.

Whereas a finance person might be 70% company and 30% personal.

These are just examples, but I hope it helps explain how I think about it.

Thanks for your question.

Bob from Miami, FL asked:

I've been subscribed for a couple of years, and I think your newsletter is fantastic. I have a structured finance background with a few Fortune 100 financial services firms. I'm now a management consultant and an Interim/Fractional COO/CFO, although more of a COO change manager.

Have you ever considered a primer on insurance? There are a myriad of policies, and it's often hard to determine when you are overinsuring. Also, the fine print seems to be designed to prevent you from ever collecting (my suspicion). I noticed in one of your newsletters that you mentioned that commercial crime insurance was basically useless. What else is? I'm assuming a good intermediary helps, but most seem to want you to buy insurance.

Thanks, regardless of whether you reply or this becomes a newsletter topic.

Thank you, Bob. That is kind.

From first principles, insurance is there to protect your business from financial catastrophe — the tail risks that are unlikely but severe.

But here’s the kicker: those risks are no longer as rare as they once were. Just ask the homeowners in LA or Florida who lost everything to so-called “once-in-a-century” weather events twice in five years.

In the commercial space, core coverage like property and liability still largely works because insurers have wide, diversified portfolios and can model the risks. But specialist covers (cyber, commercial crime, terrorism, etc.) are where it gets murky. These are harder to quantify, often concentrated, and evolving faster than underwriters can keep up.

The consequence is that premiums are ugly, and the exclusion lists are so broad they often undermine the value of the cover.

From my own experience, we once carried commercial crime insurance, but a claim was denied on a technicality buried in the exclusions. We dropped the policy, not because the risk disappeared, but because the policy was effectively worthless. And it took a shock to find that out.

The world is more connected, riskier, and less predictable, but insurance products have not kept pace. You can’t just buy peace of mind anymore. You have to actively pressure-test what you’re paying for and where you are effectively self-insuring.

So yes, a good broker matters, but even more, a good CFO mindset matters.

I’ll likely do a full insurance primer in a future post. For now, I’d encourage every CFO not to assume their insurance will save them in a crisis. Assume you will have to save yourself.

Rhys from London, UK asked:

I currently work for a high-growth company in an exciting industry (wine/spirits) with big US aspirations, which will likely lead to an exit to a larger brand (3-5 years exit).

Been with the company in an FP&A Manager role for less than a year, (controllership and FP&A experience in prior roles), however, see little progression based on the current finance structure (FD + CFO in place).

To get to the Director/CFO level, do I take opportunities elsewhere that will likely lead to future Director positions, but at what will likely be a smaller company in a less sexy industry?

Here’s the problem with sexy industries, Rhys.

Everyone wants to be a part of them. And they know it. So simple supply and demand rules apply. The more you limit yourself to ‘in-demand’ industries, the more competition you should expect for those roles and opportunities.

Early in my career, I worked for a high-profile company in a sexy industry. There was an abundance of finance talent. So much so, it became a problem for them. They were stockpiling it. Nonetheless, I managed to get myself on the leadership fast track. But despite that, I decided to leap elsewhere, as I figured I could progress even faster, in a place where there was more opportunity than talent. It proved to be one of the best career decisions I’ve ever made. I raced past the people I used to compete with (and who were no less talented).

Don’t misunderstand me, I’m not suggesting you bolt from an industry you love. A connection with the front line and product is vital for a good CFO. And if that is easier for you in an industry you have a personal interest in, then you should commit.

Just make sure you understand the trade-off, and also don’t underestimate how easy it is to get passionate about a less conventionally sexy industry if you are progressing fast and getting more responsibility.

For example, manufacturing isn’t sexy, but it is difficult. And it is a world where finance doesn’t have to fight for a seat at the table. The inherent P&L complexity makes it a non-negotiable. That makes it fun.

I love this from Scott Galloway, you might find it useful.

Thanks for your question.

Every week, I’ll share a book I loved or found useful.

A few of the biggest stories that every CFO is paying close attention to. This is the section you probably don’t want to see your name in.

AICPA, NASBA approve alternatives to the 150-hour rule

It looks like we are finally on the path to scrapping the 150-hour rule for CPA qualification. Fixing the CPA supply shortage, just in time for … *checks notes* … AI to wipe it out the shortage from the demand side.

Walmart’s CFO says higher prices are probably coming this month

I do not envy Walmart CFO John David Rainey (ok, well, maybe his pay package). Last week, he started telling anyone who would listen that the company would be raising prices because of tariffs. That sparked backlash from the White House over the weekend.

ICYMI, here are some of my favorite finance/business social media posts from this week. In the words of Kendall Roy, “all bangers, all the time.”:

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In Saturday’s CFO Secrets newsletter, we discussed how not to totally f**k up your annual budget. You can check it out here.

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.