Introduction

One of the greatest lessons we have learned over our investing careers is that exceptional people, properly incentivised, drive exceptional outcomes. While the best performers are always deeply instrinsically motivated to succeed, we believe that thoughtfully designed remuneration structures are critical in attracting, retaining, and aligning world-class executive talent.

The most successful growth companies we have worked with share a common thread: they acknowledge the importance of incentivising their executives to think and act like business owners. This requires moving beyond traditional “salary plus bonus” frameworks towards creating meaningful ownership stakes that align individual ambition and success with shareholder value creation over time.

Historically, we have seen too many companies default to benchmarking exercises and cookie-cutter approaches that miss the fundamental point that remuneration should be used as a strategic tool for creating shareholder value. The best-designed plans ensure executives share very meaningfully in the upside (and downside) of business outcomes and the opportunity to create life-changing wealth for exceptional performance.

Currently, we work with portfolio companies across different stages of growth, from late-stage private businesses preparing for IPO to public companies scaling globally. We know from firsthand experience that remuneration plans are extremely hard (and hard work) to get right. Every company’s growth scaling journey varies and will require nuanced thinking. There will always be trade-offs to make. This is why so few companies innovate and eventually revert to often what is easiest or has been done before. We believe these are the perfect preconditions for a clear set of guiding principles with which to work.

The purpose of this handbook is to outline TDM’s perspective on executive remuneration philosophy, provide tactical frameworks for implementation, and share best practices that drive alignment between executives and shareholders.

This handbook is written primarily for founders, CEOs, boards, and executive teams of fast growing, globally ambitious ‘late-stage’ companies headquartered in Australia that are preparing for IPO within the next three years. The principles will also be highly relevant to leaders of US and Australian public growth companies.

The handbook is designed for use at pivotal moments of company evolution such as executive recruitment, capital raising, and public market readiness. It can also serve as an ongoing reference in board or remuneration committee discussions. It is not designed to be as relevant for low growth, cyclical, or very early-stage businesses where there is less line of sight to enterprise value creation.

Importantly, the focus of this handbook is on remuneration strategy. It does not extend into executive search, selection, or organisational design. The content has been deliberately written to be accessible to a general executive knowledge base with the hope it is insightful and practical, without requiring tax specialisation or technical expertise to extract value.

Our Beliefs and Principles

At TDM, People and Culture is one of the four core pillars of our investment framework. We recognise that scaling culture from its infancy to thousands of employees is one of the greatest challenges to enduring growth and when done successfully, one of the most powerful sources of competitive advantange. This is a fundamental believe developed over 20 years of compounding our clients’ capital at 25% per annum.

We have learned the challenge lies in recreating the founder’s obsession – the obsession that has them thinking about the business on weekends, making personal sacrifices for long-term success and viewing every decision through the lens of long-term value creation. With this, our goal is simple but ambitious: to build businesses that outlive their founders yet carry their care forward. When ownership and accountability are woven into culture and incentives, the founder’s obsession with long-term value creation becomes part of the company’s DNA.

Creating true ownership alignment requires a systematic approach that moves from philosophical foundation, through thoughtful design, to disciplined execution. Our framework rests on seven core principles organised across three levels:

Foundational Philosophy:

Ownership Mindset – Great executives should think and act like business owners, not employees. This requires meaningful equity stakes that create genuine alignment with long-term shareholder value creation.
Total Remuneration Philosophy: Long-Term Incentives (LTI) at the Core – Base salary and short-term incentives play a role, but long-term equity ownership is the cornerstone. The goal is to ensure that executives’ financial futures are inextricably linked to the company’s long-term success.

Design Principles:

Performance-Based Over Time-Based – While time-based instruments, such as Restricted Stock Units (RSUs), can create some alignment through ownership exposure, we view these instruments as effectively “free shares” whereby even if shareholder value is eroded, they still hold material value for the recipient. This is far from optimal design. Alternatives, such as priced options, or Performance Share Units (PSUs) only share the upside of value creation and should form the cornerstone of long-term alignment.
Team-Based Over Individual Targets – Collective success beats siloed optimisation. Company-wide and team-based metrics foster alignment across leadership and the organisation.
Simplicity and Transparency – Complexity breeds confusion and in the extreme can result in recipients not valuing their equity grants. The best remuneration structures are easy to understand, communicate, and measure.

Implementation Approach:

High Conviction, Selective Approach – Remuneration should be concentrated in exceptional individuals who can drive disproportionate value creation.
Education is Critical – Even the best-designed programs fail without understanding. Executives must know how their actions link to rewards, boards must understand what they’re approving, and the broader organisation should grasp the principles guiding leadership incentives.

Section I

Foundational Principles (The Why)

Ownership Mindset

The most powerful force in business building is aligned incentives. In our experience this manifests itself in what we call the ‘ownership mindset’. Executives who think and act like owners make better decisions, build stronger cultures, and create more enduring value. Their financial interests must be inseparable from the company’s long-term success.

Cultivating this mindset at scale is one of the hardest, and most important, challenges of company building. When leaders truly feel like owners, they willingly sacrifice in the short-term to build lasting competitive advantage. Yet many remuneration systems unintentionally erode this mindset. Guaranteed compensation dulls urgency. Time-based equity grants foster entitlement instead of accountability.

The most effective structures flip this dynamic. They put equity at the centre, ensuring executives’ outcomes are overwhelmingly tied to long-term value creation. In well-designed plans, the long-term component can be 5–10 times an executive’s cumulative cash earnings over five years. Leaders with real skin in the game don’t just work hard, they work with the care, accountability, and ambition of true owners. That mindset is what helps build generational companies.

Total Remuneration Philosophy: LTI At The Core

Building an ownership mindset starts with aligning the structure of remuneration to the structure of outcomes. Cash enables security, equity creates ownership. Both matter, but they serve very different purposes.

At TDM, we believe cash compensation should underwrite the scale and responsibilities of the role, while providing an opportunity to cover life’s essentials, freeing executives to dedicate their best energy to building enduring companies. It should allow them to cover the important parts of life, such as starting families, buying homes, educating children, caring for aging parents, and managing personal financial needs. But the opportunity to build true wealth should be reserved for those who help create, and share in, growing enterprise value.

This philosophy translates into how we think about each component of total remuneration.

Base Salary: The Foundation

Base salary exists to ‘remove financial distraction’ from the role, enabling senior executives to focus entirely on disciplined, long-term value creation. It should provide confidence and stability and should represent a minority of potential total compensation for high performers over the medium term.

Key Principles:

Calibrated to business scale, individual experience, and market context.
Sufficient to attract and retain talent but not so high as to reduce equity motivation.
Should ideally only represent 10%-15% of total potential remuneration (base, any potential cash STI and LTI) in cases of exceptional performance over a 4–5 year period.

Short-Term Incentives (STI): Our Preference is None

Our ideal design includes no short-term incentives. STIs create noise, become “banked” by executives as expected income, and, when not achieved, create pressure to move goalposts or provide retrospective justification. The psychological impact of missing STI targets often outweighs their motivational value.

STIs also create timing mismatches with business reality. Annual bonus cycles rarely align with actual business cycles, project timelines, or market conditions. This forces artificial performance measurement that distorts decision-making throughout the year and can impede long-term value creation.

While our preference is to remove STIs entirely, we recognise there are circumstances where a short-term incentive can be justified, and even beneficial, when thoughtfully designed. These situations typically arise during transition, uncertainty, or inflection, such as when a new leadership team is being established, or when a company is undergoing a turnaround. In these cases, a modest STI can help maintain focus, confidence, and stability while longer-term ownership structures take root. However we do believe, if needed, it is best to only use STI as an exception and not the norm. We also know this is uncomfortable for many executives and boards to embrace.

However, any STI should remain deliberately constrained in both size and design. Short-term incentive should generally represent no more than 25% of base salary. Within that, if an STI is used at all, it should be:

Modest in scale;
Tied to a single company-wide outcome that reinforces progress toward long-term value creation, and;
Clearly positioned as a transitional or exceptional measure, not a standing entitlement.

For detailed guidance and further examples, see Section II: When Short-Term Incentives Can Play A Role.

Long-Term Incentives (LTI): The Value Creation Engine

LTI should represent the vast majority of total remuneration potential and serve as the primary vehicle for wealth creation. This is where executives should see life-changing upside for building genuinely valuable businesses and share meaningfully in the value they help create for all shareholders.

Core Design Principle.

Target company-wide annual net dilution. This should be 2–3% per annum. For the purpose of this handbook, we define net dilution as:

Net exercised value (share price less exercise price) divided by company value.

The definition is equally applicable to RSUs (nil exercise price) and options.

Instrument Selection and Mix.

The right mix of equity instruments depends on company stage, liquidity profile, and leadership maturity. Our strong preference is for options in private settings, and RSUs or PSUs post-IPO.

Options provide maximum alignment with value creation as they only create value when the company’s share price rises above the agreed exercise price, ensuring executives share directly in the upside experienced by shareholders. Options should be the default LTI mechanism for private companies in Australia.
Options provide maximum alignment with value creation as they only create value when the company’s share price rises above the agreed exercise price, ensuring executives share directly in the upside experienced by shareholders. Options should be the default LTI mechanism for private companies in Australia.
PSUs structurally create the clearest link between executive reward and shareholder outcomes but should only be utilised by public companies. PSUs vest only upon achieving long-term performance hurdles and should be tied to one or two metrics (such as share price or earnings growth) that leadership can directly influence.

A further explanation on when best to use each instrument, analysis, and market design can be found in Appendix A: Equity Instrument Considerations as well as more deeply available on our website.

Our research shows public companies exceeding ~3% annual net dilution through stock-based compensation are significantly less likely to outperform the market [1].

While this philosophy applies broadly to executive remuneration, Founder-CEOs require distinct consideration. Their alignment with shareholders is already deep, but their liquidity constraints and long-term commitment introduce unique challenges. In many cases, founders hold significant equity stakes that make additional long-term incentives less critical, and in fact, the best structure we’ve found is often higher cash salaries. For this reason, we advocate a tailored approach that balances sustained ownership with practical financial stability. Further detail is outlined in Section III: Special Considerations for Founder-CEOs.

Design Principles (The What)

Performance-Based Preferred to Time-Based Structures

At TDM, we believe equity should translate into wealth only when enduring enterprise value has been created. Said another way, vesting should be triggered by outcomes, not anniversaries. Executives should earn ownership when they have demonstrably contributed to sustainable growth and shareholder returns.

Performance-based incentives come in two forms: the issuing of priced options (with an exercise price at or above today’s valuation) and Performance Share Unit (RSUs with performance hurdles). We are very mindful that this principle of performance-based vesting over time-based is not considered the market norm, particularly in the US, and even more so in broader based equity schemes.

While some alignment is created via time-based vesting (the recipient wears the ups and downs of the share price), if the share price goes down and shareholder value is eroded, the recipient can still obtain material value. We maintain for executives that the starting principle must be performance-based when thinking about LTI structure, knowing each business situation (scale, time to listing, jurisdiction) will all play a role in final plan design.

Performance-based vesting should align directly with metrics that define enduring enterprise value. We recommend focusing on one or two company-wide measures that leadership can influence over a multi-year horizon. Typical frameworks may include:

Enterprise Value Growth (EVG): Vesting occurs when cumulative EV surpasses predefined thresholds.
Revenue and Margin Targets: Combines top-line expansion with profitability discipline.
Total Shareholder Return (TSR): Common in listed companies to link outcomes to investor experience.

Example structure for illustrative purposes only:

While as a principle this can sometimes be tricky to put into practice, an illustrative worked example is found in the Case Study. Here, a framework has been moulded whereby performance vesting has been reverse-engineered from the enterprise value that has been created.

For ease, a shorthand of this framework:

For instance, in the example company presented in the Case Study, a “great” scenario ($2.5B EV, 5 time increase) leads to 10 times salary-equivalent upside for the CEO.

Team-Based Over Individual Targets

We strongly prefer simple, team-based metrics over complex, individual KPIs. The best businesses win as teams, not as collections of high-performing individuals, and remuneration should reinforce this truth. The goal is not to engineer the most technically precise measure for each role, but to create a system that is easy to understand, communicate, and rally around. The more leaders share the same scorecard, the more they think and act like owners of one enterprise.

We are passionate about this because we so often see companies where executive teams operate with fragmented incentives. The CFO optimises margins, the CMO chases customer growth, the CTO prioritises technical ambition — each striving for functional excellence while assuming individual success will aggregate into company success. But businesses are not spreadsheets of siloed KPIs, they are more like rowing crews, where power comes from synchronised effort. When executives pull in different directions, even exceptional individual performance can create friction, inefficiency, and missed potential.

True owners don’t think in silos because their wealth depends on the success of the whole. Team-based remuneration brings that same holistic perspective to leadership. When everyone’s rewards are tied to enterprise outcomes, decision-making naturally shifts from functional optimisation to collective success. The same dynamic applies to executive teams. When personal success depends on shared success, leaders begin to care as much about helping each other win as they do about their own performance.

Implementation Approach (The How)

Simplicity and Transparency

The biggest mistake we see in remuneration design is creating plans that nobody understands. If executives cannot clearly articulate how their actions drive their remuneration outcomes, the plan has failed its primary purpose of creating alignment. When executives can’t connect their daily decisions to long-term outcomes, they manage for the short-term metrics that they can measure.

We strongly favour plans that can be explained in simple terms and where executives can see a direct line between their daily decisions and their long-term financial outcomes. Complexity for the sake of sophistication destroys value.

We recommend the “elevator test” for any remuneration structure: if an executive cannot explain their compensation package in a one-minute elevator ride, it’s too complex.

What Simple Looks Like:

Single story: Every component reinforces the same long-term value driver.
Clear causation: Executives can see how daily choices shape wealth creation.
Transparent measurement: Metrics are defined upfront with clear data and no discretion.
Honest risk-sharing: Exceptional rewards require exceptional performance.

Common Complexity Traps:

Metric overload: Too many or conflicting KPIs dilute focus.
Tax over-engineering: Structures that obscure underlying economics.
Constant adjustment: Sliding scales and overrides that destroy credibility.

High Conviction, Selective Approach

Executive remuneration should focus resources on exceptional individuals who can drive disproportionate value creation. In most growth companies, two or three executive positions fundamentally determine the trajectory of the business. These are typically roles that directly influence the company’s core value drivers such as revenue growth, market positioning, operational efficiency, or strategic direction. The key is identifying positions where exceptional performance creates exponential, not linear, impact.

Once these high-impact roles are identified, compensation should be structured to attract and retain truly exceptional performers. That means being willing to pay well above market for extraordinary talent while maintaining discipline elsewhere. This requires moving beyond benchmarking exercises that anchor to market medians. Market data reflects average talent and average performance. Exceptional operators should earn multiples of the average but only when they deliver exceptional results through meaningful equity participation.

Practical Application.

Role prioritisation: Identify the 3-8 executive/leadership positions that most directly influence enterprise value creation. These become your high-conviction bets.
Talent investment: Structure equity packages for these roles that can create life-changing wealth for exceptional performance.
Disciplined restraint: Maintain market-competitive, but not market-leading, packages for other executive positions. Good talent in supporting roles; exceptional talent in driving roles.
Performance accountability: High-conviction people investments require high-conviction performance expectations. Exceptional compensation should demand exceptional results.

Education is Critical

Even the most thoughtfully designed plans are ineffective without proper education. Executives must understand how equity works, how their company is valued, and how their actions connect to share price outcomes. Education should begin at the offer stage and continue through regular forums and updates.

We’ve seen firsthand how gaps in understanding can undermine alignment. In one previous portfolio company, initial uptake of in-the-money options was barely 60% simply because the plan wasn’t explained well. The result was a missed opportunity for ownership, motivation, and retention.

Equity is not free. Every RSU or option issued represents a real cost to shareholders through dilution. If participants don’t understand how it works or how their behaviour can influence value creation that cost is wastage.

Executives don’t need to think like professional investors, but they should understand the same fundamentals that investors use to value the business and how those fundamentals connect to their own potential outcomes.

What Great Education Looks Like

Understanding the Business Model and Value Drivers

Executives should know what drives the company’s valuation and how investors assess performance. They should be able to explain the key levers — growth, margins, capital efficiency — and benchmark them against peers. When leaders understand how external investors think, they make internal decisions that more thoughtfully correlate with long-term value creation. A very simple example of how this could be communicated is below.
Translating Enterprise Value into Personal Wealth

For many executives, share price appreciation feels abstract. Bring it to life through simple, tangible examples: “If we achieve our five-year plan and trade at industry multiples, your equity could be worth $X. If we outperform, it could be worth $Y.”

Grounding the upside in reality helps executives see equity not as a lottery ticket, but as a logical, earned outcome of long-term performance. Illustrate with simple tables or scenario ranges where possible, such as the one below:
Connecting Daily Decisions to Long-Term Value

Help executives see how their operational choices – be it investing in product, improving customer experience or hiring great people – compound into enterprise value over time. When that connection is clear, day-to-day decisions become acts of ownership.

“X% revenue growth + Y% margin improvement = Z% share price increase = $A in LTI value.”
Addressing Liquidity and Timing Realities

Clarity on when and how equity can be realised is essential. Explain vesting schedules, potential liquidity events, and tax implications upfront. Uncertainty breeds anxiety and weakens commitment.
Making Education Continuous

Equity understanding fades without reinforcement. Education should be ongoing — through quarterly updates, company “investor days,” or internal performance reviews that link results to valuation. Transparency about progress sustains motivation and keeps the ownership mindset alive.

Illustrative Case Study: Applying the Framework in Practice

Context

The following example demonstrates how the principles in this handbook can be applied in practice. It illustrates how a growth-stage company approximately three years out from IPO can apply a systematic approach to building an executive remuneration framework consistent with TDM’s philosophy.

Illustrative Company Profile:

Stage: Late-stage Australian private business, preparing for IPO within 2–3 years, currently growing revenue at 30% p.a. and expects this to continue over the forecast period.
Current valuation: $500 million.
LTI Structure: 4-year options, with a strike price at today’s valuation, that must be held until fully vested. These options are all issued upfront, with no annual top ups [2].
Executive Team (9 including CEO) Long-term Incentive Pool (LTIP) Allocation: Represents 80% of the total long-term incentive pool, which accounts for approximately 8% of total dilution over 4 years). This expands to 10% total dilution including 15 other key staff members in the LTIP (1.7% net dilution p.a.).
Broader team: c.500 employees – see bottom of the case study.
Objective: Limit equity participation in the first instance to this senior group, focusing ownership where impact is highest [3].

Full workings can be found in the Case Study, with a summary of practical outcomes summarised below. As referenced in Design Principles (The What); Performance-Based Preferred to Time-Based Structures, the collective value creation ambition defines the number of options that will result in a certain amount of value transferred to management from that outcome.

1. Pool Sizing: Applying the “High Conviction, Selective Approach”

The company establishes a four-year equity pool representing approximately 10% of the value created over the period. This reflects the High Conviction, Selective Approach concentrating meaningful equity in the small number of roles that drive disproportionate value creation, rather than spreading dilution broadly. The structure ensures leadership has genuine ownership without compromising shareholder discipline.

Each scenario illustrates how incremental enterprise value growth translates directly into management outcomes. Even at the highest performance level, this structure (with limited recipients) remains below the recommended 2–3% annual net dilution band — reinforcing disciplined stewardship and strong alignment between executives and shareholders. The impact on net dilution when expanding the recipients can be seen in the full workings (see Case Study).

2. Allocation: Team-Based Structure with Leadership Concentration

CEO (20% of pool): Reflects the leverage of exceptional leadership. In the “great” scenario, the CEO’s LTI value of c.$40m equates to c.10x annual salary ¬— a meaningful, performance-based upside.
Executive Team (60% of pool): Eight executives share this allocation, each with the potential for c.$15m upside with great performance.
Broader Team (20% of pool): Allocated across 15 key employees, ensuring alignment extends beyond the C-Suite while maintaining focus where impact is greatest.

3. Outcome Analysis: “LTI at the Core” In Practice

These outcomes demonstrate how total remuneration evolves under different performance scenarios with long-term incentives progressively dominating the package as enterprise value compounds. You can see the multiplication effect in action in the full workings, but the result is clear and asymmetric alignment: exceptional business performance drives exceptional personal outcomes.

For example, under a poor outcome (equity value of the company increases by 40% over 4 years), the CEO would earn just 1.3 times of their current compensation package, while under a great outcome (equity value increases 5-fold), the CEO would earn 10 times their current package.

Section II

When Short-Term Incentives Can Play a Role

While TDM’s remuneration philosophy places long-term equity ownership at the centre of executive rewards, there are specific situations where a short-term incentive (STI) can serve a constructive purpose as a bridge or complement: temporary tools to support stability, focus, or alignment during defined periods of transition. These cases are exceptions, not precedents.

Situations Where an STI Can Serve a Clear Strategic Purpose

Leadership Transitions

When a new executive is onboarding, or when leadership continuity is critical through a period of organisational change, an STI can provide short-term clarity and confidence while long-term equity incentives are being established or vesting.

Example: A newly appointed CEO in a pre-IPO business may have a 12–18 month window before meaningful LTI value becomes tangible. A modest STI can maintain engagement and focus through that transition.

Guidance: Keep metrics simple and tied to foundational execution milestones (e.g. team formation, operational readiness, or meeting liquidity objectives).
Turnaround or Recovery Conditions

In turnaround scenarios, survival and stability come before growth. A short-term plan can help focus leadership energy on restoring the foundations for compounding such as cash flow stability, margin improvement, or balance sheet repair.

Example: An STI tied to achieving positive operating cash flow or returning to profitability can help drive the collective urgency needed to stabilise the business.

Guidance: Use binary, high-stakes milestones that represent genuine step-changes, not incremental improvements.
Early-Stage Scaling

There is an argument for smaller companies to potentially lean into STI when they are trying to step-change the talent in the business and can’t afford to do so on a headline basis. In this scenario, STI can be a short-term solution to boost potential cash compensation while ensuring that if the business does not perform, it is not paid.

Example: A high-growth, unprofitable private company moving from $50m to $100m ARR may use a one or two-year revenue milestone for STI.

Guidance: Ensure any STI target reinforces behaviours that will underpin future compounding, not short-term opportunism and that the STI program is only used to bridge the gap until a stage of maturity and profitability allows a more effective LTI framework.
Execptional Strategic Events

On rare occasions, a short-term incentive may be used to recognise the successful completion of a discrete, transformative initiative but this must be one that materially shifts the company’s trajectory.

Examples: Entering a new international market, completing a core system re-platforming, or achieving a critical financing milestone.

Guidance: Design these incentives as one-off, binary events rather than rolling entitlements, and ensure they are explicitly approved by the board as exceptional.

Design Guidelines for All STIs

If an STI is deemed necessary, it should be:

Deliberately modest: keep the total STI opportunity below 25–30% of base salary.
Simple and focused: use one or two company-wide metrics only, avoiding departmental or individual targets.
A measure of performance, not expectation: rewards should reflect meaningful achievement.
Temporary and self-eliminating: communicate upfront that the STI will be removed or phased out once long-term ownership alignment is established.
Complementary, not competing: ensure STI outcomes never outweigh or dilute the primacy of long-term incentives.

In summary, short-term incentives can occasionally play a constructive role, but only as temporary instruments that serve a clear strategic purpose. They should never compete with or replace the ownership mindset at the heart of value creation. When designed thoughtfully and sparingly, they can bridge transitions without compromising the culture of long-term accountability that builds generational companies.

Section III

Special Considerations for Founder-CEOs

Founder-CEOs represent a unique category in executive remuneration. Their personal wealth, identity, and motivation are deeply intertwined with the company’s success, yet their financial reality often differs sharply from their apparent wealth on paper. Over years of partnering with founder-led businesses, we’ve encountered two common scenarios:

The Diluted Founder: A CEO who has raised significant capital and now holds a smaller equity stake (<10%), often subordinated within a preference stack. In this case, their remuneration may look more like what has been previously described in this handbook for ‘professional’ CEOs given their diminished equity holding.
The Substantial Shareholder Founder: A CEO who retains a large equity position (>40%) and appears wealthy on paper, but whose wealth is highly illiquid.

In both cases, thoughtful remuneration design is essential to sustain alignment and performance.

The Liquidity Paradox

Consider a Founder-CEO of a fast-growing private business valued at $500 million who owns 40%. Their notional wealth is $200 million, but it may be inaccessible for 5–10 years, depending on the company’s path to liquidity. In that time, they still face normal life demands such as buying a home, supporting a family, educating children, or caring for parents.

Ironically, the most committed founders are often the most capital-constrained. They reinvest in the business, avoid secondary sales, and defer liquidity to maximise long-term value creation. This commitment should be supported, not penalised.

We’ve seen instances where Founder-CEOs, despite large paper wealth, experience real financial stress that sometimes lead to suboptimal business decisions or premature liquidity events. For this reason, we often encourage modest, structured secondary sell-downs at appropriate times. These can relieve personal pressure while preserving long-term motivation and ownership alignment.

A Different Framework for Remuneration

Founder-CEOs most likely already exhibit deep alignment through their ownership stakes. Unlike hired executives, often they don’t need equity-heavy incentives to behave like owners. Their remuneration should therefore be approached differently: ensuring sustainability and practicality, rather than simply replicating alignment structures designed for other executives or employees.

We often ask founders to choose how they would like to be remunerated– would they prefer to be paid a fair market rate (what we describe as the cost to replace them), or would they like a bespoke remuneration program given their unique circumstance? For example, we have previously encountered a certain type of founder that only want high hurdle performance-based equity.

In our experience, as companies get bigger and more successful and with this start to search for very highly qualified executives that demand high remuneration packages, Founder-CEOs gravitate to fair remuneration parity as a reflection of the value they have, and are, creating alongside the other executives.

Guiding Principles

Existing Ownership Matters

A founder holding 40% equity is inherently aligned with shareholders. Additional grants should focus on retention and targted performance outcomes, not basic alignment.
Life Stage Considerations

Founders in mid-career often face significant personal financial commitments. Reasonable cash compensation allows them to manage these without eroding focus or prompting premature liquidity events.
Long-Term Sustainability

Generational companies take decades to build. Founder compensation should be sustainable over that horizon, enabling leadership continuity without personal strain.
Performance Still Matters

Higher cash does not mean guaranteed cash. Founder salaries should remain linked to company performance and preserve incentives for excellence.

Section IV

Frequently Asked Questions

While some of the questions were covered in the handbook, we have compiled a few of the broader remuneration questions not bound by ‘executive remuneration’ that are most asked of us. While not within direct scope of the handbook, to make this useful in practice, we have included brief, generalised responses below:

What do you think to founders taking large amounts of secondary dollars off the table?

At a certain stage of business – usually at the point that it is ready to absorb institutional growth capital – the founder(s) should have an opportunity to sell shares. These thoughtful liquidity moments are aimed at providing financial security, while enhancing long-term alignment through enabling focus and optimal decision making. As a rule of thumb, this should be no more than 5-10% of their holding. Any more than this and the signalling of a major sell down or perceived “cashing out”, can have significant cultural impacts among the employee base while still in the ‘high growth’ stage of the business life.

The exception that requires additional flexibility is where the business has been self-funded through the profitability of the business. In this situation, the founders would not have been diluted given the lack of external capital and have earned the right for a larger sell down (see Special Considerations for Founder-CEOs in Section III).

What about other senior management participation in secondary events?

We believe in fairness and transparency – senior management should be able to sell in the same proportion as the founder. More broadly we believe that employee secondary is an incredibly important cultural tool used to motivate, retain and reward long tenured employees. At a certain scale, and profitability, regular secondary events should be encouraged.

What do you think about using benchmarking and market data in remuneration design?

Too many boards and compensation committees treat market data as gospel rather than as a calibration tool. The best boards use it to validate reasonableness, not to outsource judgement. By definition, market medians reflect average companies hiring average executives. Market data helps check for fairness and offers defensibility, but it cannot substitute for first principles thinking.

In our preferred compensation structure most of the value is accrued via long-term incentives. This also happens to be the hardest aspect of compensation to measure and one not aided by backward looking benchmarking. We strongly believe remuneration should be designed bottom up to account for the specifics of a single company using the principles we have set out above as a framework.

What do you think about using compensation consultants?

While we don’t quite subscribe to Charlie Munger’s view “I would rather throw a viper down my shirtfront than hire a compensation consultant”, we do think their input should be confined to what they are good at: market data, legal compliance, tax structuring, and plan administration. Compensation consultants can add value when used for data and technical input not philosophy or decision-making. In our experience, their focus has been overly focused on measuring LTI based on the current share price, rather than on the approach we recommend; that is, looking four years out at the company’s potential and how ongoing operating success will translate to LTI value (see the worked Case Study example).

What do you think about issuing new options or resetting option strike prices if the results of the business have been impacted by large macro shocks?

As a general rule, resetting option strike prices after a market or macro shock feels logical in the moment but almost always erodes the ownership culture you’re trying to build, one that is designed to ride the ups and downs together as shareholders. However, as with most elements of remuneration, there are exceptions to this position. By not resetting or reissuing, you will most likely have a disincentivised and disenfranchised CEO and management team on your hands. If you think you have the right team in place, pragmatism is sometimes required.

Our baseline perspective:

Don’t reprice, reissue (selectively). If a shock is so severe that outstanding options are permanently ‘out of the money’, consider issuing new options at the prevailing price — but only for those whose retention is truly critical and where the exercise price reset reflects current market reality, not convenience.
Separate macro from underperformance. If the entire market is down 50% but the company outperformed peers, it’s reasonable to consider an adjustment. If performance lagged, the loss should stand.
Protect optics and fairness. Repricing can look like self-dealing. Transparency with shareholders, employees, and the board is critical. Any change must be explained as preserving alignment, not engineering windfalls.
Embed resilience in plan design. The best antidote to macro volatility is foresight — consider designing LTI structures with multi-year horizons, and a mix of instruments (options, RSUs, PSUs). While not ideal philosophically, rolling grants can be considered when there is less predictability in the operating plan, reducing the risk of a full re-set of LTI plans over a four-year period. By embedding some resilience, not every grant is hostage to one valuation point in time.

What stage of company should have a Remuneration Committee and what is their role?

A Remuneration Committee (RemCo) or Compensation Committee becomes valuable when the complexity, scale, or external scrutiny of a company outgrows the informal judgment of founders and early investors. Before that point, it often adds bureaucracy without adding value.

Stage Guidance:

Early Stage (private and <100 employees): No formal RemCo needed. Remuneration decisions should sit with the CEO and board as a collective, grounded in transparency, principle and trust. Simplicity and direct dialogue outperform process.
Growth Stage (pre-IPO or >150 employees): Introduce a RemCo or a lead non-executive director to facilitate remuneration discussion. The goal is discipline, not compliance, ensuring consistency, fairness, and alignment with long-term value creation is at the forefront of any remuneration structure
Public or IPO-Ready Stage: A formal RemCo is essential. Public shareholders expect independent oversight of executive pay, disclosure standards require it, and the complexity of instruments and regulation demands structure.

We have a global team, should we geo-index remuneration?

Geographic pay differentiation is a practical reality, but it must never override your core philosophy of ownership and alignment. There will be variations dependent on size and scale, geographic mix, and location of head office amongst other factors that will require some pragmatism. However, our baseline perspective remains clear:

Philosophy before geography. Geo-indexing should adjust cash compensation, but ideally not equity grants. An employee’s base salary should reflect local living standards and talent markets – a software engineer in Bangalore should not be paid San Francisco cash – but their relative ownership opportunity should feel equivalent if the value they create on an absolute basis is equal.
Equity grants should be global. Equity builds culture. The vesting structure, upside potential, and value-creation link should be identical across geographies. Varying equity too aggressively by location dilutes ownership culture and creates resentment.
Transparency matters. Communicate the rationale clearly: geographic calibration ensures fairness in cash compensation, while equity creates a shared global incentive. People respect logic even when numbers differ.
Size and scale matters. Geo-indexing becomes relevant when your global footprint exceeds 50 employees across multiple regions, and local wage inflation diverges materially from HQ. Before then, a single global salary philosophy anchored to role seniority and impact is usually simpler and more coherent. At a certain scale again, it may make sense to reimagine a structure that still aligns with the core ownership philosophy. For example, a US domiciled, large technology business may set a notional total compensation (cash and equity) the same across different markets for equivalent roles, but due to currency differences, an employee in Australia for instance would receive fewer RSUs than a US counterpart.

How should we think about distribution of equity? Company-wide Employee Stock Option Plans (ESOP) partcipation or just use it to reward high performers?

How you distribute equity signals what behaviours and performance you value most. The key is to balance broad-based ownership (to build an ownership culture) with selective concentration (to drive value creation as has been described throughout the handbook). Broader equity grants should inspire an ownership mindset across the organisation while the philosophy of concentrating significant upside in the few individuals who can change the company’s trajectory is integral to drive the impact of any equity program.

Company-wide ESOP: building an ownership culture. Broad participation reinforces shared accountability and long-term thinking. Even small grants help employees see themselves as owners, which can have powerful cultural effects.
- Works best in the scaling phase (50–500 employees) when you want to institutionalise the ownership mindset.
- Typical allocation: c30% of annual LTIP dilution to the broader team. In the worked example found in the Case Study, by including all employees in the LTIP, the equity pool grows by 50% to 15% of shares on issue.
- Design for simplicity: small, consistent annual top-ups rather than one-off symbolic grants.
- Communicate clearly: employees must understand that equity is a long-term wealth creator, not a short-term bonus substitute. As we have stated earlier, this is the most important component of ESOPs, otherwise it is an unappreciated, ineffective and wasteful use of shareholder value.
Discretionary top-ups: retaining and rewarding difference-makers. Not all roles create equal value. A small number of exceptional performers (or key roles during inflection points) warrant disproportionate equity to retain and motivate.
- These “high-conviction bets” are where equity can generate asymmetric returns for the company.
- Top-ups should be board-approved, performance-justified, and rare, not a workaround for poor cash benchmarking.
- They should be framed as earned alignment, not entitlement.
- The most effective approach is to maintain a discretionary reserve pool (typically 0.5–1.0% of fully diluted capital) that the board can allocate selectively, outside of annual cycles.

Should we run ESOP annual top-ups for all staff and if so, at what percentage of the initial grant?

Modest, regular ESOP top-ups are one of the simplest and most effective ways to sustain ownership culture over time. They ensure that every employee continues to feel like an equity participant, even as the company grows and early grants vest or dilute. As new hires and capital raises expand the share base, ongoing top-ups preserve relative ownership for long-term team members and expresses that they are a continuing partner in creating long-term value. It is still important to stay within the targeted 2-3% dilution across all grants and ensure boards maintain oversight and recalibrate as company valuation changes overtime.

How to structure top-ups:

Frequency: Annual or biannual, depending on company stage and total dilution budget.
Eligibility: Broad-based but reserved for those still demonstrating performance and cultural alignment.
Quantum: 10% if dilution sensitivity is high or the company has matured, but it can be up to 25% for earlier-stage, high-growth businesses with expanding equity pools.
Vesting: Reset standard 3–4 year rolling vesting; do not reissue unvested equity unless in exceptional circumstances.
Communication: Make it formulaic and predictable to avoid perceived subjectivity or politicking — e.g., “All eligible employees receive an annual top-up equal to 15% of their original ESOP allocation.”

What is best practice for STI banding and payout levels?

Prior to reading this, refer to Section II “When Short-Term Incentives Can Play a Role”.

The best STI frameworks are simple, asymmetric, and self-funding: outperformance pays very well, underperformance pays nothing.

There is a very debated nuance around the payout of delivering the budget or agreed operating plan. Some CEOs run conservative budget while others run very aggressive ones. It is a board member’s job to understand and have a view on the plan and its assumptions, as among other things, this will determine how much STI is paid on achieving it.

For example, delivering on plan results to a very conservative budget may only earn up to 70% of the target STI opportunity, while in other situations it may result in 100% of STI payout.

A few design principles to be mindful of:

Asymmetry drives motivation: above target performance should be rewarded non-linearly, up to 150% of target STI at exceptional achievement. We recommend capping STI at 1.5x budgeted aggregate payout. A reminder though, as a general rule of thumb, the total STI opportunity should remain below 25–30% of base salary.
Underperformance on underperformance: One thing to be wary of is the mechanic created by lapping a poor year. Reasonable growth on a bad year shouldn’t be rewarded in the same way as reasonable growth on a great year.

How should directors be remunerated?

This is very dependent on size and maturity of business, but we do believe that directors should be remunerated for their time. This can happen via cash, equity or a hybrid, but once independent directors join the board, a more structured approach needs to be found that encourages them to allocate the time necessary to constructively contribute (1-2 days per month at a minimum).

Most importantly, to promote an ownership mentality and align interests with shareholders, we believe at a minimum, directors should own 5 times their annual remuneration in stock. Refer to our Board Member Handbook for more detail on this topic.

What about employee transparency when it comes to pay?

Putting aside jurisdictionally-nuanced legal context, we believe in promoting transparency, fairness and meritocracy. However, you can’t avoid the fact that money is a sensitive subject and therefore one that must be approached with care.

We have found the best middle ground is occupied by general transparency, not individual specifics, such as:

Transparent salary bands.
Transparent (and simple) equity and option mechanics.
Clear narratives for why someone is paid what they are, linked back to performance and overall value creation.

This creates trust and consistency while avoiding the potential pitfalls associated with context-free individual disclosure.

Appendix A

Equity Instrument Considerations

Long-term incentives are the cornerstone of executive remuneration design, but the instruments used to deliver them vary by stage, jurisdiction, and liquidity profile. While our philosophy remains simple — equity is a tool for ownership alignment, not an entitlement — understanding the trade-offs between different instruments helps boards make deliberate, context-specific choices.

Common Equity Instruments

Options

Options grant the right, but not the obligation, to purchase shares at a predetermined price (the exercise price) within a defined period. They deliver asymmetric outcomes: executives benefit only when the company’s value exceeds the strike price, directly linking reward to growth in enterprise value.

Best suited for: Private or pre-IPO businesses with significant growth potential.

Advantages: Strong alignment with shareholder outcomes, simple link between valuation and reward, and clear upside/downside symmetry.

Considerations: Worthless if value stalls or declines, require liquidity clarity, and accounting and tax vary by jurisdiction.

Tax treatment: Options are typically taxed upon exercise on the difference between the exercise price and the fair market value at that time. In the United States, Incentive Stock Options (ISOs) may qualify for favourable long-term capital gains treatment if shares are held for at least one year after exercise and two years after grant, though this may create exposure to the Alternative Minimum Tax (AMT). In Australia and other jurisdictions, approved employee share schemes may defer taxation until sale, provided certain holding and reporting conditions are met. Given the complexity and local variation, we recommend that boards seek specialist tax advice to align the timing of taxation, liquidity, and vesting events.

Employee considerations: Options are often viewed as the purest form of ownership alignment because they reward value creation above today’s valuation. They offer significant upside potential when enterprise value compounds but may hold no value if the company underperforms. Exercising options typically requires cash outlay and, in some jurisdictions, may trigger tax before liquidity. These dynamics make education critical — executives should clearly understand how exercise timing, liquidity events, and long-term value creation interact. When structured and communicated well, options can be one of the most powerful instruments for fostering true ownership alignment.
Restricted Stock Units (RSUs)

RSUs are a promise to deliver shares once vesting conditions (time or performance) are met. They provide direct ownership on settlement and are the most common instrument for listed companies.

Best suited for: Public or late-stage private companies with clear valuations and predictable liquidity.

Advantages: Simple to understand and communicate, create tangible ownership, and provide predictable value and retention stability.

Considerations: Can reward tenure rather than performance if time-based and should include performance gates for senior roles.

Tax Treatment: RSUs are typically taxed as ordinary income at the point of vesting, based on the market value of the shares delivered. In jurisdictions such as the U.S. and Australia, this can result in a tax obligation even if no liquidity event has occurred. For listed companies, employees can usually sell shares to cover tax liabilities upon vesting, but private companies must plan for potential cashflow constraints. Subsequent share appreciation is generally taxed as capital gains upon sale. Given jurisdictional differences, we recommend that boards structure RSU plans with clear visibility on tax timing and liquidity options for participants.

Employee considerations: RSUs are perceived as a more certain form of equity compensation as they retain value even if the share price declines after grant. Because they deliver actual shares at vesting, they create an immediate sense of ownership and participation in the business. However, the lack of leverage compared to options means that while downside protection is higher, the potential upside is lower. RSUs work best for retaining experienced leaders who value predictability and tangible ownership outcomes.
Performance Share Units (PSUs)

PSUs vest only upon achieving defined performance outcomes over multi-year periods, directly linking reward to long-term value creation.

Best suited for: Public or mature private companies with established performance metrics.

Advantages: Strong alignment, clear linkage between results and reward, and well-regarded by investors.

Considerations: Require careful calibration, are of moderate complexity, and requires avoidance excessive or conflicting metrics.

Tax treatment: Like RSUs, PSUs are typically taxed as ordinary income upon vesting, based on the market value of shares delivered once performance hurdles are met. Capital gains treatment may apply to any subsequent share appreciation between vesting and sale. The timing of tax obligations aligns with performance achievement, which helps participants plan liquidity relative to realised outcomes. Given the complexity of jurisdictional rules, we recommend that boards seek advice to ensure tax and liquidity alignment with vesting milestones.

Employee considerations: PSUs appeal strongly to executives who are motivated by measurable, outcome-based performance. They encourage sustained focus on long-term goals and reinforce accountability for results that truly drive enterprise value. Because they only vest when meaningful outcomes are achieved, PSUs can feel uncertain in volatile markets and may risk being perceived as binary or unattainable if not well explained. Education and transparency are therefore critical: leaders should understand how targets are set, what milestones represent success, and how progress will be communicated over time. Regular updates on performance against targets help sustain engagement and belief in the plan. When structured thoughtfully, PSUs create a powerful sense of partnership between executives and shareholders, rewarding patience, discipline, and durable value creation.
Hybrid or Mix Models

Many companies blend equity instruments to balance motivation, retention, and risk. For example, pairing options (for performance leverage) with RSUs (for retention stability) in pre-IPO settings, or combining PSUs and RSUs post-IPO to strengthen pay-for-performance alignment.

Best suited for: Businesses in transition, either scaling rapidly toward IPO, or newly listed companies seeking to balance liquidity with alignment.

Advantages: Offers flexibility to tailor incentives to different roles, risk profiles, and stages of growth. Combines the motivational power of options with the certainty and retention benefits of RSUs or PSUs. Enables boards to manage dilution more deliberately across time while maintaining consistency in overall philosophy.

Considerations: Mixed models require clear communication to ensure participants understand the rationale and interplay between instruments. The combination should reinforce a single narrative of ownership, not create complexity or confusion. Balance is key – too many instruments or overlapping vesting structures can dilute focus and transparency.

Tax treatment: Tax outcomes depend on the underlying instruments and their relative weighting. Option components are generally taxed upon exercise, while RSU or PSU components are taxed at vesting. The timing of taxation and liquidity can differ across instruments, which underscores the importance of integrated plan design. We recommend that boards seek specialist advice to ensure the combined structure aligns tax, liquidity, and performance outcomes across the leadership team.

Employee considerations: Hybrid models allow companies to accommodate different executive risk appetites and stages of career. Options can attract growth-minded leaders comfortable with higher risk and longer horizons, while RSUs or PSUs appeal to those seeking stability and more predictable wealth creation. When balanced thoughtfully, hybrid structures can motivate diverse leadership teams and sustain engagement through multiple phases of growth without compromising ownership alignment.

Whatever the mix, the philosophy remains consistent: equity should reward ownership, not employment.

Footnotes

[1] In this research, given its public market focus, we define Net Dilution as: Net RSU and options issued, divided by weighted average shares outstanding, where 1 RSU is equivalent to 3 options. This differs from the definition used in this paper given its private company focus and use of options.

[2] It should also be noted that if instead of this approach, if you allocated options each year at the current share price, you end up with higher dilution.

[3] If LTIP is expanded to the entire company, the equity pool grows by 50% to 15% of shares on issue, or 2.6% net dilution p.a.

Executive Remuneration Handbook