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2Bobs—with David C. Baker and Blair Enns
A 7-part Theory of Principal Compensation
Jan 31, 2024
The hosts discuss the conflicts that arise when determining principal compensation in firms with multiple owners. They explain the three components of compensation - ownership, work, and risk. They explore the various forms of risk associated with lending money to a company. They also delve into the principles of partner compensation, including ownership percentage and contribution level.
23:13
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Quick takeaways
- Owners get paid for what they own, what they do, and the specific risk they take, which contributes to their overall compensation.
- Principles should contribute in a unique way to foster a healthier compensation structure and avoid direct comparisons between partners.
Deep dives
Three Things that Owners Get Paid For
Owners get paid for what they own, which shows up in the form of profit. They also get paid for what they do in the form of a paycheck. Lastly, owners get paid based on the specific risk they take, such as loaning money to the company. These three factors, ownership, work, and risk, contribute to the overall compensation of owners.
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