We are an established privately owned business that has brought on a general manager to startup a new division and help diversify revenue. It's been a successful venture, and now instead of a straight salary we are in negotiations with this general manager who is looking for a percentage of annual profits as part of a bonus incentive plan, or potential ownership.
I'm not familiar with how to navigate this, can anyone weigh in on various options or considerations?
Compensation comes in a multitude of forms. You can pay for talent or pay for performance/results. First, how do you feel about an executive having a stake in the company based on their contribution to your growth?
Some things to consider are the risks you are asking the GM to take if the future of your company is not secure without someone like this candidate. Is that worth something? What would the plan be if they under-performed? Is their performance dependent on anyone or anything outside their direct control? How can you measure performance objectively for this person? Are they willing to create the plan and goals for themself so they "own" the commitment? Can the compensation be scaled to the effect this person has on the business, positive or negative? What are the milestones proposed to show things are going along the right path before bonuses are calculated? Will this person consider salary without these other incentives, and could you pay it?
The answer is that it always depends on what you want and need, and how well you can measure the performance of your agreement. What you don't want to end up doing is having subjective measures and resentment build because you're unable to see eye to eye on value.