AN EXECUTIVE BONUS PLAN FRAMEWORK

Steven Cesare, Ph.D.

A business owner from Illinois called me the other day to talk about his proposed employee bonus plans for 2026. Building upon consistent year-over-year success, the business owner began to rattle off the predictable bonus criteria for his management team and executive staff. You know them as well as I do:

Foreman-Crew Member Retention, Portfolio Labor Efficiency, and Portfolio Job Quality;
Field Supervisors-Portfolio Gross Margin, Portfolio Foremen Retention, and Portfolio Job Quality;
Field Department Managers-Department Gross Margin, Department Foremen Retention, Department Job Quality;
Branch Managers-Branch Revenue, Branch Gross Margin, Branch Foremen Retention, Branch Job Quality, Branch Maintenance Contract Renewals;
Client Service Representatives-Enhancements Sales and Maintenance Contract Renewals;
Project Manager-Construction Change Orders and Construction Gross Margin;
Sales Employees-Sales Revenue at approved Gross Margin Rate;
Office Manager-Net Profit;
Executives-Company Revenue and Net Profit.

Upon hearing the above-mentioned litany, I offered three points of feedback. First, the business owner’s bonus eligibility goals for each position were too conservative; not aggressive enough to fund a growth-oriented enterprise. Second, the bonus amounts lacked ignition; not lucrative enough to redefine success for his company culture. Third, to be taken seriously, the executive bonus program had to be reconsidered.

Don’t get me wrong. If today was 2003, the executive bonus program would be fine. It’s not 2003. It’s 2026; replete with complexity, regulation, and pressure more demanding by the day. That said, I told the owner that his executive bonus criteria (e.g., company revenue and net profit) were financial metrics. At that level, real executives must focus extensively on overall company value, not univariate financial metrics.

As a capitalist, I told the owner that he and his fellow executives (e.g., Controller, Vice President, President) should stop thinking like managers who only focus on making money each year; instead, they must actually focus on increasing the overall value of the entire company, year-over-year. As such, I recommended the 2026 executive bonus plan consist of 25% due to Net Profit and 75% due to an annual increase in EBITDA.

To be clear: Net Profit is the true “bottom line.” It’s the money left after covering every single expense (e.g., materials, fuel, equipment, payroll, insurance, loan payments, and taxes). This is the amount of money the business actually keeps; it’s what can be taken home by the owner or reinvested back into the company.

To be even more clear: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In plain terms, it strips out items like loan costs, taxes, and especially depreciation, which is an accounting expense for equipment wear-and-tear that doesn’t actually involve cash leaving the business. Because of that, EBITDA gives a clearer view of the operating cash flow (i.e., the money the company’s daily work is really generating). This measure is often used to value companies, since it shows how strong the business is at producing cash from its core operations, regardless of financing or tax differences.

Within the Green Industry, here are some common drivers of EBITDA that real executives address:

Revenue per Labor Hour (Crew Efficiency)
Client Mix and Contract Structure
Pricing and Realized Rate Discipline
Equipment Utilization and Maintenance Costs
Overhead and Administrative Efficiency

Within that bonus plan framework, I directed the owner to put his external Accountant to work and develop a rolling three-year historical EBITDA trend line summary and a 2026 EBITDA bonus metric capable of transforming the executive team into real executives, intent on being rewarded for increasing the overall value of their company, rather than simply acting as managers merely trying to get another year-end bonus.

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