Bonus composition: All deal bonuses are composed of a top-down share — percentage of total payout based on overall deal parameters, such as size, structure, industry, timing, etc. — and a bottom-up share — an individual allocation based on participant performance, role, title, etc. (See Fig 1.)
Average top-down sizing: The overall value-share sizing varies widely, but the average range is 15% to 20% of upside value.
Average bottom-up sizing: As a multiple of annual cash compensation, the average individual payout range is 3x to 6x or more for C-suite executives. Special talent is sometimes rewarded above that range for outsized contribution, sustained high performance, etc. Pay philosophy on short-term vs. long-term pay is one key driver here.
Most important sizing determinants: Among the many factors in sizing deal bonuses, deal size, anticipated timing of deal, and owner’s involvement in the company are some of the most important. (See Fig 2.)
Most popular sizing structure: A graduated sharing scheme via Value Band or Straight Line (Smooth Upslope) in a synthetic equity format is the most common deal bonus structure. It enables owners to stimulate value creation by providing key talent with a scalable, customizable incentive that is commensurate with company growth.