Peter Lohmann's Podcast
00:35:42 · Adam Willis
[00:35:42] S0: Yeah. I've talked about it a little bit. I think I spoke at NARPM events around performance based compensation on a no profit coach, and those guys are really high on it as well. So we have... When you're bringing in executives, you can do them in a consultative way where it's like, here's the 14 things that I'm going to do, and you negotiate a price for those deliverables. You give it to a c suite fractional type person. They go out and do it. That's what we've done with Ben. With other executives that we have on our team, it's like, you know, Phantom stock is something that we've toyed around the idea with or literally starting a sister company and saying, hey, Josh, do wanna be my business partner? And that has served us really well. The the goal here is for me to... As a CEO of what probably is going to turn into a conglomerate would be, like, finding really fantastic people, finding out what their needs values are, what their goals are, and then helping them achieve them together. I have my unique abilities. They have theirs. So if you can find those partners, then I'm totally happy to do, like, let's do an equity play on this, and that served me really well. I've done other type compensation structures where someone will come in and say, hey. I'm a customer making, you know, $304,100,500,000 dollars a year. And I'll say, okay. Cool. We can't pay you that. But if you can grow this division and you can pull these types of levers and being, you know, manager, director, vice president, you know, executive type roles, giving them the right tools that they could then get a piece of the pie. And so I'm trying to be very, very selfless in the sense, like, let's grow the pie together, and your slice of the pie gets bigger. In this... In one of the scenarios, it was like, you grow this division. You get x amount above cost recovery. So it's like we back out... You know, you take it from a $500,000 to a million dollars. I back out your salary operating expense, and we split the proceeds together. And that scales, and that really incentivizes them to be really judicious not only with what their needs are and... But, like, that need usually cost me money. And I'm like, cool. Like, I'm gonna recover my costs, and we're gonna split any upside. But my job as a CEO is to place bets now on these people who are way more skilled than I ever could.
00:38:00 · Adam Willis, Peter Lohmann
And so I'm... To your... I don't like poker. Don't like Las Vegas. I know you have a lot more fun than I do when we go to those events. But [00:38:09] S1: You make me sound like I'm some eye roller. I I think I've gambled maybe $200 of my whole life. [00:38:14] S0: I'm up on Vegas $350, and I have been that way since I graduated college. That's awesome. And I have not played since. But, like, we're just... I'm placing bets. I'm playing, hey, I'm putting this bet on red. And it's fun because sometimes they don't shake out, but a lot of times they do. But it's it's a risk mitigation too. Right? Like, you can gamble on on an unbeknownst... Something that you can't control. Or you can do really great interviews, really enjoy this person, really... And they are... They've gone further and farther than you ever could alone. You recruit them back to the cause and be like, I'm placing a bet on you. And these are 6 figure bets, and it's so fun to do that. [00:38:52] S1: Tell me about some creative compensation structures that didn't work out or that you considered and decided against.
00:38:52 · Peter Lohmann, Adam Willis
[00:38:52] S1: Tell me about some creative compensation structures that didn't work out or that you considered and decided against. [00:39:05] S0: Ones that have not worked out. Originally, I I read a book called Compensation by Vern Harnish. It's somewhere up here. One of the ones that we had done was... And I spoke about this, and I need to retract it. But it was, like, always bonusing over year over year growth. And for the most part, when the company is growing... Well, let me give you some context. If Nestwell Property Management does a $100,000 in net income in 2025, and then in 2026, we do a 150,000 in net income, I was taking that 50 k and dividing it amongst the entire company. And that worked well when the company is growing. What really sucks is in 2027, instead of 150 k in net income, we only did 75 in net income. And the bonus pool, the pool of money that's eligible is only on year over year growth. And so I'm always protecting the house. I always have working capital. In the example I gave you, I always have a 100,000 of working capital because that's protected. We're only paying on upside. What really sucks is you have a remote team member in, you know, Spain, and they work them. They're itself to, like, the bone, and they just grind. But then we don't have a really great year, and the bonuses are only based off of year over year growth. It's really disincentivizing saying, sorry. There's nothing for you. [00:40:34] S1: Mhmm. I go bonus amount was smaller than last year is what you're saying.
00:40:34 · Peter Lohmann, Adam Willis
[00:40:34] S1: Mhmm. I go bonus amount was smaller than last year is what you're saying. [00:40:38] S0: Yeah. Meaning, it's only based on year over year growth. So if you [00:40:41] S1: do Oh, it a no growth. [00:40:42] S0: Okay. No growth. There's nothing. There's no growth. I mean, we've always been on the fortunate scale of, you know, of a hockey stick. We haven't had any bad years, but there have been years where it was like... Or quarters that weren't, like, hyper... That weren't prolific. Yeah. And that that sucks because that person is, you know, wanting to pay for their kid's school or buy a car or whatever. The other the other one that when you're basing it just off of the company's net income... Let's see. When you're basing it just off of net income, a lot of the times, these people do not have the means to really impact it. Right? So it's like that entry level individual contributor doesn't have the ability to pull Sure. Really big levers. Or I go out and I say, hey. We're doing m and a. I just spent a $500,000. I vaporized any [00:41:31] S1: I mean, I could have told you this was a bad idea before any of this, so you should have called me because it's clearly not a good idea.
00:41:31 · Peter Lohmann, Adam Willis
[00:41:31] S1: I mean, I could have told you this was a bad idea before any of this, so you should have called me because it's clearly not a good idea. [00:41:37] S0: Well, We have pivoted. Right? Like, you know, sometimes I just gotta go through it. I gotta put my hand on the stove. I got it. Yep. But but it's worked out well. We have different bonus schedules based off of contribution margin. Some people are not impacted at all, so they're protected. Their bonuses, their incentives are totally protected from any decision that I make that could drain, you know, net income and whatnot. But those that do have the means do participate with me on on growth and and bonuses are... Their bonuses are structured on their ability to pull really big levers.
00:42:11 · Peter Lohmann
[00:42:11] S1: Yeah. There's there's always tension when you talk about creative compensation. There's tension between complexity and sort of susceptibility to gaming or outside factors and simplicity. So the ideal compensation structure would be dead simple to understand by anybody, impossible to game, and directly correlated with the individual's performance. Right? That's essentially impossible. So everything we're doing is is trade offs off of that, like, perfect compensation arrangement. Where I've landed on all this, and you can tell me if you agree, is, like, for for most team members, so non leadership, you you... It has to be unbelievably basic and simple. And the the simpler, the better. So, obviously, they're making hourly or or salary. And then what we do is year end, there's a bonus, and it's it's it's like a single digit percent... Percentage of their base salary that they earned that year. So if they came in halfway through the year, then it would be half of, you know, a full time person making the same amount. And then it... It's like... And then I tweak it up or down a little bit just depending on their performance or their, yeah, their performance for that year. So let's just pretend it's 2% of their salary. If I think they did a great job that year, really carried their department or showed a lot of growth and and jumped in and solved some stuff for us. Maybe I bump it to 3% or two and a half percent. Or, usually, I won't go below, like, whatever our base is. And that's pretty much it because I think if you were to try and, like, introduce all these complicated structures, now you're having all these arguments about, like, well, you know, I saw you got a new car. Was that coming out of the net income for the company? Like, well, you know, just like you... You're immediately into the the weeds. So then on the leadership side, though, I think there's more room to be creative. Probably in a case by case basis, probably some type of profit sharing. I'm in favor of that over any type of equity. I think with equity, people, a, don't really understand it, b, are suspicious of how it's calculated, c, they're not... They don't they don't properly value it. So, like, if you were to grant somebody 5% of... 5% equity in your business, right, for for you, Adam, would be, like, an unbelievable, like, giveaway. Mhmm.