So, you have questions about your bonus?

Outside of equity, the most frequent questions we receive from both candidates and clients are those around bonus structure. To help clarify this part of the hiring equation, we catalogued the different types we’ve seen over the years in a way we hope is helpful as you look to grow your team or seek new opportunities:

Annual bonus (company performance / individual performance split): This is by far the most common bonus structure. Most often, the company’s performance is tied to overall revenue and the individual performance is tied to revenue brought in. Splits on the two vary greatly, with the lowest we’ve seen being 50/50 for company/individual and the highest being 80/20 for company/individual.

Annual bonus with a deal bonus (flat): This bonus structure is just a different version of the one above. Most of the time, the annual bonus is tied almost exclusively to company performance and the individual receives a flat dollar amount/deal. The annual bonuses were in the traditional 20-25% range and the deal bonuses ranged in size from $6,500 to $17,500 per deal. Please note: the individuals who provided this information were all director level or higher.

Annual bonus with a deal bonus (% of EBITDA): This structure is the most complicated of the three. To help clarify how this type of bonus pays out, we went back and found some language in a recent offer letter. This was for a vice president-level role that was at private equity-backed startup, so this individual was both sourcing and closing:

“A cash incentive bonus is intended to reward you for acquiring well-performing practices at market pricing in a timely manner. The bonus is also intended to reward you as part of CLIENT’s leadership team with a focus on profitable execution. The components of the bonus are outlined below:

2% of purchased QoE EBITDA where the purchase multiple is 6x or lower, or 1% if the purchase multiple is greater than 6x. The bonus is increased 10% for closing within 70 calendar days of letter of intent execution.

This bonus is payable in two increments: 1) 67% within 30 days of calendar quarter end for all practices closed in the preceding quarter, and 2) 33% one year later contingent upon the acquired practice’s first-year, post-close EBITDA being at least pre-close QoE EBITDA. Any form of earnout is excluded from the calculations.

EXAMPLES:

COMPANY X has $200,000 of QoE EBITDA and is closed for $1M in cash on March 31, 2022, 60 days after the letter of intent was signed. March 31, 2023 practice EBITDA was $250,000.

• Total cash bonus eligible for this transaction: $4,400 ($200,000 * 2% = $4,000 + 10% for timely close kicker)

• $2,948 due by April 30, 2022 (67% of $4,400)

• $1,452 due by April 30, 2023 (33% of $4,400 and practice financial success)

COMPANY Y has $1M of QoE EBITDA and is closed for $5M in cash, $3M in CLIENT vesting equity and $1M cash practice expansion payment due 12 months after close for delivering an additional $200,000 of EBITDA on a new contract. Closing occurred May 31, 2022, after a January 1, 2022 letter of intent. May 31, 2023, EBITDA was $900,000 for the business and $250,000 for the contract.

• Total cash bonus eligible for this transaction: $10,000 ($1,000,000 * 1% = $10,000 + no timely close kicker). Hospitalist contract earnout does not count.

• $6,700 due by July 31, 2021 (67% of $10,000)

• $0 due, first-year post-close practice failed to meet QoE EBITDA, hospitalist earnout does not count.”

We hope this information is helpful. Please contact any member of our corporate development leadership team if we can be of assistance as you navigate bonus payouts or any other aspects of hiring and compensation.