Does each leader understand what they are paid to carry and what earns their annual incentive?
A larger bonus cannot resolve an unclear responsibility. Begin with the work the person owns, the authority and support they have, and the contribution the business needs this year.
Milestone 23 connects those expectations to base pay and a supported annual opportunity. It uses the actual people carrying the work, including owner-held, combined and fractional roles.
Support the pay with the role, market and forecast
The role defines the responsibility and capability needed. Relevant market evidence helps you understand the cost of attracting and retaining someone for that scope. The company’s financial forecast shows what it can support and what the cost means for investment and ownership goals.
Consider all three together. If the full role is not yet supported, compare scope, timing, development and fractional help. Preserve existing commitments and include benefits, employer costs, commissions and other arrangements in the full review.
In a hypothetical package, $200,000 of base pay plus a $45,000 target annual incentive creates $245,000 of target cash compensation. The incentive is already included in that total. It is not necessarily earned or guaranteed. An advance or guarantee needs its own clear, reviewed terms.
Define Number, System and Leader work
Use Number, System and Leader to describe the contribution and evidence behind the agreement.
| Contribution | Useful evidence |
|---|---|
| Number | Defined operating or financial results, reconciled to the agreed period and target. |
| System | A maintained process used by the responsible people in actual decisions. |
| Leader | Observed judgment, delegation and follow-through within agreed authority. |
The function assessment diagnoses systems. The person assessment considers demonstrated capability. Their findings help choose the work, but a higher self-rating does not earn a bonus. The owner’s milestone and Velocity scores remain separate.
For a hypothetical revenue leader, a commitment could combine supported revenue results, reliable customer stages used in forecasting and delegation of routine sales decisions. Name the starting position, expected result, evidence, reviewer and treatment of partial completion before the period begins.
Give the functions a reason to cooperate
The CRO leads the revenue system. The COO leads delivery, capacity and margins. The CFO maintains financial reliability, planning and cash visibility. The CEO integrates their choices into the company plan. Each contributes to results affected by the others.
A leader’s agreement can include shared outcomes when their contribution and authority are clear. Discuss the exposure to decisions outside their direct control. Agreed qualification and handoff standards, for example, connect revenue choices with delivery economics.
Select measures and weights for the actual role. The CEO needs an integrated company view. A fractional leader or owner holding several responsibilities needs terms matching that arrangement. No universal weighting or personality label settles the design.
Reconcile every agreement with company funding
The M22 pool establishes company funding. Individual terms determine eligibility and earning. Show how all proposed awards fit together, including any reserve or separately authorized funding.
Test below-, at- and above-plan results, mixed performance and relevant boundaries. A zero target, negative result, lower-is-better measure or completed project cannot always use actual divided by target. Explain the rule that applies.
If actual company performance already increases pool funding, check whether another performance factor rewards that result a second time. Include the complete expense and payment once in the financial plan. Supported arithmetic, financial acceptance and an agreed award are distinct decisions.
Prepare and agree on the actual terms
The Annual Compensation Plan develops one person’s role, base pay, opportunity, measures, evidence and review. The CEO, CFO, CRO and COO guidance applies the same exercise to each responsibility. The Compensation Blueprint connects the individual records to the whole company plan.
Use an existing agreement when it performs the same job. Identify the period, eligibility, earning conditions, calculation order, change process, approval and payment timing. Obtain the specialist review appropriate to those terms, then have the actual participant and authorized company representative accept them.
Ask the person to explain a realistic example and what they can influence. Personal goals can help make an opportunity meaningful, but private family or financial disclosure is voluntary. Keep future hiring assumptions separate from current agreements.
Use a real monthly leadership discussion
Review available closed-period results and the actual Number, System and Leader work against the accepted terms. Discuss the reason for differences and what support or next action is needed.
A leader may improve revenue while a promised process remains unused. Examine both under the agreed evidence. Record the actual discussion, decision, responsible person and next review. You do not have to wait for the annual payout to begin using the agreement.
What completion looks like
The current leadership team’s annual agreements are supported, accepted and reconciled to company funding. One completed monthly leadership review demonstrates their use, with maintenance and prospective renewal assigned. A future meeting or a draft agreement is still preparation.
Open the seven completion requirements
1. Identify the actual responsibilities and people.
Purpose: The actual leadership responsibilities and compensation scope are clear.
Question: Who actually holds each responsibility, and which future roles are still assumptions?
Evidence: Current seats and people, including owner-held, combined or fractional roles, align with Module 7. Planned future hires are identified without requiring an agreement with an imaginary employee.
2. Support the base pay and opportunity.
Purpose: Base pay and target opportunity have support.
Question: What supports the base pay and target opportunity, including existing promises?
Evidence: Role expectations, relevant market evidence and the company forecast support the proposed dollars and mix. Existing commitments and other compensation are accounted for.
3. Define the contribution and evidence.
Purpose: Annual performance terms connect company, function and person.
Question: What contribution and evidence were agreed across Number, System, Leader and cooperation?
Evidence: Agreed measures, weights and evidence address the Number, System and Leader work and cross-functional cooperation relevant to the role. Diagnostic or Velocity scores are not automatic payout formulas.
4. Test the complete award calculation.
Purpose: The award calculation is clear and funded.
Question: Do tested award outcomes reconcile with funded resources without counting performance twice?
Evidence: Tested examples show below/at/above-plan results, mixed performance and applicable boundaries. Total awards reconcile with M22 without unintended duplicate performance adjustments, expense or payment.
5. Agree the actual terms.
Purpose: Current participants and the authorized company representative have agreed the terms.
Question: Which terms did the participant and authorized representative actually accept?
Evidence: Written accepted agreements, applicable specialist review and an actual explanation cover eligibility, earning conditions, changes, approval and payment. Unresolved essential terms remain incomplete.
6. Use one actual monthly leadership review.
Purpose: The agreements have been used in an actual review.
Question: What did the completed monthly review establish using actual results and work evidence?
Evidence: One completed monthly leadership review uses available closed-period results and actual work evidence to discuss progress under the agreed terms, differences and next actions. A full annual payout cycle is not required.
7. Maintain the same agreements.
Purpose: Maintenance is connected to the ongoing rhythm.
Question: Who maintains the agreement, and when will it be reviewed and renewed?
Evidence: Named responsibility, protected agreement records, scheduled financial/leadership reviews and prospective annual renewal are connected to the same Playbook.
Review the milestone-specific 0–3 score and evidence test
0 (Not Started). No supported review or written annual incentive design is in place for the leadership responsibilities the company currently assigns.
1 (Learning). You can explain base pay, annual incentive opportunity, Number/System/Leader work and cross-functional cooperation, and identify what is needed to apply them. Company-specific agreements have not been prepared.
2 (In Progress). Substantive annual compensation work is underway, but one or more of the seven requirements remains incomplete.
3 (Installed). All seven requirements are met: the current leadership team’s annual agreements are supported, accepted and reconciled to company funding, and one actual monthly review demonstrates their use, with continuing responsibility and review assigned.
Verification test: trace one current leader’s base, opportunity, agreed measures, evidence and award calculation through the funding plan, then inspect the corresponding agreements for the other current responsibilities. Use the completed monthly review to explain performance, the decision and next action. A timed explanation or future promise of a review is insufficient.
Use suitable existing work. Record each requirement as complete, incomplete or not reviewed, with its evidence and date. You choose the saved score; keep owner, peer, coach and AI assessments separate. Unreviewed evidence is not automatically zero. Preserve prior reviews and identify the next action, responsible person and review date.
Maintain the agreement as the role develops
Keep protected agreements in The Numbers / Executive Compensation, linked from the same leadership roadmap and development work. The Rhythm holds dated discussions and decisions.
Monthly reviews check performance and support. Quarterly reviews consider meaningful changes in responsibility. Annual planning establishes next-year terms alongside the budget. Preserve prior agreements and earned rights; a revised forecast does not quietly replace them.
Compensation can support a different operating role for you. The actual transfer of responsibility still needs the work and evidence in Module 9.
Explore a useful annual agreement
- 494. How to Design an Annual Executive Compensation Plan, with Ryan and Kim: connect functional responsibility and cooperation. Use your actual agreed measures, weights and funding.
- 404. Design a CEO Compensation Plan Tied to Your Cash Flow and Equity Valuation Goals, with Craig Rutledge: consider the integrated executive package and ownership direction.
- Number, System and Leader: define contribution through real work and evidence.
Choose your next step
Review the wider system. Use the Ownership Assessment to consider this capability alongside your goals, numbers and leadership work. Choose a useful priority from the evidence.
Bring the plan together with support. The 90-Day Boardroom Blueprint connects ownership direction, the financial foundation and decisions in a first usable Playbook. You can explore support directly.
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