My partner is the founder and I am the co-founder of our company. He has a sales background and I have operations.
We agreed for him to have more equity (50/30) as the company/products were his idea. We also agreed on equal compensation. Now he wants incentive plans in place so he benefits from sales he personally generates. He may also want more - a percentage of what the sales team generates. He says sales is more important than anything else in the company. He said I could have incentives on expense savings.
Is this fair? As a business owner, should his incentive be based on how the company as a whole performs?
Sounds greedy to me. Depending on the stage of the company, the company needs as much capital as it can keep for growth. His incentive should be growing the company, which he also directly benefits from, instead of taking away from revenue. Sales incentives should be reserved for the sales employees, not the owners. He is thinking short-term. Do you guys have a plan for growth and do you agree on it? It sounds to me like he is not dedicated to the company's growth. If revenue numbers are good for the year, I would suggest bonuses as an alternative, but only after all expenses are calculated and money has been set aside for growth. Once, again, depending on the stage, as much as possible should stay in the company to build value. Just my opinion.
This is not fair, it is a way for him to try and circumvent your original agreement.
If he wants sales incentives, offer him a lower base pay and then commissions on top of that. That way he can earn more than he is now if he performs really well (and I assume if he performs really well it's good for you too), but if he doesn't, then he is worse off than he currently is. This seems fairer to me.
If he is just trying to take more on top of his agreed amount, then you really have to say no. If you don't, you are setting a precedent for him to walk over you whenever he wants.
50% of 10 to 20 mil. in 2 - 3 years should be all the incentive he needs. He is one of the business owners, after all. A typical sales executive does not have the incentive of being able to sell the business later on.
If sales are behind projections, that should be his #1 focus.
You are still in the very, very early stages of life as a company and as Manny stated, as much cash as possible should stay in the company to grow it. Your going to need that cash down the road in ways you haven't forseen yet.
"Fair" is probably something on the order of him earning 80-110% of what he would be able to earn in a similar sales type position at a more traditional company.
Most likely he would earn a little less at this startup than at a traditional company if there is really huge future opportunity (evaluated realistically, take a hard look at the probability of success). If he is turning down solid opportunities elsewhere, and this company has a moderate amount of risk, his compensation package might actually need to be higher than elsewhere, as an incentive for the risk (and I am not forgetting about the equity part).
How you pay this 80-110% salary can be decided multiple ways. Though I would expect him to receive somewhere around 60-70% of it as direct compensation and 40-30% as sales commission/bonus.
Or, to put it another way, it doesn't really matter how he wants the dollar amounts on his paychecks to be classified, it only matters what those dollars add up to relative to everything else.
Owners rarely get paid commissions, especially founders.
He'll get the payout when you do.
Stick to the agreement.