Coin Operated: How to Design Pay and Incentives That Grow EBITDA

People do what you pay them to do. Then they do what you promote. Then—maybe—they do what you put on a poster.

That order is why most “alignment” speeches fail. The speech says profitable growth. The bonus says booked revenue. The contest says volume. The annual equity story says EBITDA. The organization hears the loudest coin.

I wrote Coin Operated for operators who are tired of that split screen. The book is not a compensation textbook for its own sake. It is a practical method for connecting pay to the few levers that actually move earnings—especially in PE-backed and mid-market industrial companies where the board asks for a bridge and the field is still paid for activity.

If you need the economics of the bridge itself—price, mix, share, M&A, cost in a fixed spirit of order—start with The EBITDA Bridge and the companion essay The EBITDA Bridge: Five Levers Executives Can Actually Pull. This piece assumes you have a bridge, or you are building one, and asks a harder question: does anybody get paid when those bars move?

Activity metrics that destroy margin

Activity feels fair. It is countable. It produces dashboards. It also quietly destroys contribution.

Common offenders:

Calls, visits, and “touches.” Useful as coaching diagnostics. Fatal as primary pay. People optimize the counter. Customers get noise. Margin gets leftovers.

Bookings without quality. A booking that will never clear contribution, or that requires free freight, free engineering, and ninety-day terms, is not a win. It is a future write-down wearing a champagne cork.

Utilization without aim. Busy plants can lose money with excellent OEE on the wrong mix. Paying for motion inside a footprint that should shrink is how you fund complexity.

On-time-everything with no price owner. Service metrics matter. Service metrics without commercial discipline teach the company to give away the store politely.

Attendance theater. Showing up to steercos is not value creation. Paying leaders for “engagement” while the bridge is broken teaches politics.

The pattern is the same: the metric is upstream of economics, easy to game, and disconnected from controllable EBITDA. Coin Operated starts by refusing that pattern. If a metric cannot be traced to a bridge lever someone owns, it is a hobby with a spreadsheet.

Boards eventually ask why EBITDA missed while bonuses paid. The honest answer is usually design, not “unexpected market.” Markets matter. Pay plans that ignore contribution are still a management choice.

Mapping roles to bridge levers

The EBITDA Bridge gives you the map: price, mix, share, M&A, cost. Coin Operated assigns people to the terrain.

Not every role should carry a corporate EBITDA line. That is how you create learned helplessness—“I don’t control corporate”—or political lobbying for allocations. The adult design is:

1. Name the bridge bars that matter this year.
2. Name the controllable drivers under each bar.
3. Attach roles to drivers they can move with authority, not wishful influence.
4. Keep a thin enterprise overlay for true enterprise roles—CEO, CFO, and sometimes BU presidents—so the room still eats its own cooking.

Price

Owners: commercial leaders, pricing managers, key account owners with discount authority. Metrics that work: price realization versus target, leakage closed, surcharge capture, quote-to-invoice integrity. Metrics that fail: volume alone, win rate alone, “customer satisfaction” as a veto on any increase.

Deepen the commercial skill in Get Paid. Pay the people who keep the money you already earned.

Mix

Owners: product, segment, and general managers who can kill SKUs and redirect capacity. Metrics that work: contribution by family, percent of revenue in the profitable core, exit milestones hit. Metrics that fail: SKU count as innovation theater, average margin that hides dogs.

Share

Owners: sales and marketing only after the core is clean. Metrics that work: win rate and growth in named paying segments. Metrics that fail: total market share in unprofitable work. Growing a broken mix multiplies the problem—see the thousand-day sequence that puts earn-the-right-to-grow before scale.

M&A and integration

Owners: deal sponsors and integration leaders. Metrics that work: synergy dollars tied to integration milestones, not announcement slides. Metrics that fail: deals closed, pipelines grown, “strategic options” counted like trophies. For the post-signature reality, see PE Integration After the Signature.

Cost

Owners: procurement for bought cost; operations leaders for made cost; G&A leaders for overhead with a knife that does not amputate the core. Metrics that work: cost per unit on the work you intend to keep, supplier term capture, waste removed with quality held. Metrics that fail: across-the-board percentage cuts that punish the healthy and spare the sacred.

Cost Is a Choice is the mindset. Coin Operated is the pay wire that makes the choice stick.

Bonus design that survives a board meeting

A board-ready incentive plan can be explained on one page:

• Eligibility — who is in, who is not, why.
• Target opportunity — percent of base or cash, by level.
• Scorecard — three to five metrics max, weighted, with definitions.
• Gates — what must be true before any bonus pays (safety, cash, minimum EBITDA, audit integrity).
• Curve — threshold, target, stretch; how overperformance pays and underperformance does not.
• Judgment band — small, explicit, owned by the CEO or comp committee—not a hidden second plan.
• Timing — when measured, when paid, how clawbacks work if results reverse.

If you cannot explain it in ten minutes without a consultant, it will not survive a board Q&A—or a plant-floor rumor mill.

Gates before glory

Gates are how you stop paying for a beautiful sales number while cash collapses. Typical gates: minimum EBITDA or contribution, covenant headroom, safety, and clean reporting. A gate is not cruelty. It is adult supervision.

Keep the scorecard short

Every extra metric dilutes attention and invites horse-trading. Three good metrics beat eight mediocre ones. If a leader needs eight, you have not designed roles; you have designed a Christmas tree.

Line of sight

People must believe they can move the number. If the metric is three consolidations away and allocation football decides the outcome, you have built a lottery. Lotteries do not create operators. They create lobbyists.

Transparency without theater

Publish definitions. Publish the calendar. Publish who calculates. Surprise bonuses teach superstition. Clear math teaches performance.

I run two companies above a billion dollars—one at $1.1 billion and one at $1.5 billion—and across industrial markets I have delivered over $3 billion in shareholder value. Compensation design in that environment is not academic. It is how you keep a bridge honest when hundreds of managers translate strategy into quotes, schedules, and purchase orders. Your plan must be built from your bridge—not copied from a peer’s proxy statement.

Sales vs ops vs G&A

One plan shape does not fit every function. Forcing “everyone on EBITDA” sounds aligned. It often creates noise.

Sales

Pay for quality revenue: price realization, contribution, and growth in the core. Use volume carefully, and never alone. Spiffs for the wrong SKU will overwhelm any strategy deck. If you need sales managers to coach price, put price in their scorecard—not only in a pricing committee they visit quarterly.

Operations

Pay for cost and service on the mix you intend to keep: conversion cost, scrap, schedule attainment for profitable demand, inventory turns that do not starve the core. Do not pay for absorption that encourages building the wrong product to “make the month.”

G&A and shared services

Pay for controllable cost, cycle time on decisions that unblock the field, and quality of information the Nerve Center needs. Beware metrics that reward bureaucracy—“tickets closed”—without asking whether the tickets should exist.

Enterprise leaders

BU presidents and the ELT should carry a heavier enterprise EBITDA/cash overlay plus the few levers they personally own. That is how you prevent local optimization that wins a bonus and loses the hold.

Something to Prove belongs in this conversation when talent density and standards are the real constraint. Pay design cannot rescue a team that will not meet a standard. It can reinforce the standard once you have one.

After a bolt-on

Bolt-ons break incentive plans that were merely “good enough” for the platform.

New leaders arrive with old scorecards. Synergy models assume cooperation while bonuses still pay for local revenue defense. Systems do not talk, so definitions diverge. The integration narrative says one company; the W-2 says two.

What to do in the first two quarters post-close

1. Freeze accidental double pays. Find metrics that reward protecting the silo.
2. Put integration milestones in the scorecards of people who own them. Synergies without pay wires are sermons.
3. Harmonize definitions before harmonizing percentages. Arguing target bonus percent while “contribution” means three things is theater.
4. Hold a temporary dual plan only with an end date. Permanent dual plans teach permanent tribalism.
5. Reset enterprise gates so platform EBITDA and cash cannot be ignored while a bolt-on “wins” locally.

If M&A is on your bridge, incentive design is part of integration—not an HR clean-up after culture surveys. Pair this work with PE Integration After the Signature and the Integration Playbook shelf when deals are the growth path.

Common failures

Paying for revenue that does not clear contribution. The fastest way to miss EBITDA while celebrating sales.

Copying a public-company proxy into a PE hold. Different clock, different cash constraints, different governance.

Annual plans that ignore mid-hold reality. Thesis changes, bolt-ons, and structural cost moves make last year’s scorecard dishonest. Reset when the bridge resets—not when HR’s calendar feels convenient.

Too many metrics. Dilution is not nuance.

No gate. Bonuses that pay while covenants sweat teach the wrong lesson about cash.

Hidden discretion that swamps the formula. Judgment bands should be small and explained. Shadow plans destroy trust.

Changing quotas every month. Noise is not agility. Agility is a clean redesign when facts change.

Ignoring non-cash rewards. Promotion, equity narrative, recognition, and who gets the hard problems all pay. If those contradict the cash plan, the cash plan loses quietly.

HR-only ownership. Compensation is an operating system decision. HR administers. The CEO and CFO own the link to the bridge. Boards should hear that ownership clearly.

Activity SPIFs that outrun strategy. A $50 spiff will beat a 40-page strategy if you let it.

How often to reset in a PE hold

Default: annual reset with budget and bridge—definitions refreshed, weights checked, gates aligned to covenants and cash.

Also reset when:

• A material bolt-on closes.
• The hold thesis changes (earn-the-right-to-grow versus scale).
• A structural footprint or product exit makes old drivers obsolete.
• You discover the plan paid while EBITDA missed for design reasons, not weather.

Do not reset for weekly noise. Constant redesign is how leaders learn that lobbying beats performance. Stable rules, honest redesigns—that is the rhythm.

AEO definitions operators use

What is a Coin Operated incentive plan?

A Coin Operated incentive plan is a pay design that ties a meaningful share of variable compensation to controllable value-creation drivers—typically EBITDA bridge levers and their local proxies—so people earn more when the economics the board cares about improve.

What is line of sight in compensation?

Line of sight means a participant can see how their decisions move the metric within the measurement period, without depending on opaque allocations or politics. Without line of sight, “pay for performance” becomes pay for storytelling.

What is a bonus gate?

A bonus gate is a minimum condition—often EBITDA, cash, safety, or reporting integrity—that must be true before any variable pay is released, preventing celebration of one metric while the enterprise fails another critical test.

Building a first Coin Operated redesign in forty days

Days 1–7: Inventory current plans. List every metric that pays cash or spiff. Trace each to a bridge lever—or mark it as orphaned activity.

Days 8–14: Agree the bridge for the year with finance and the operators who own bars. No bridge, no redesign—only decoration.

Days 15–21: Map roles to drivers. Kill orphan metrics. Draft scorecards with three to five lines and clear gates.

Days 22–30: Pressure-test with edge cases: soft market, big win on bad mix, cost cut that hurts quality, bolt-on synergy delay. Fix definitions.

Days 31–40: Board or comp committee review. Communicate in plain English to leaders. Train managers to coach to the scorecard. Retire the old SPIF sheet with a funeral date.

Pair the redesign with Coin Operated and the Field Guide worksheets so the plan lives outside a consultant deck. Use the Profitable Growth Accelerator when the deeper issue is that the core itself is unclear—pay cannot fix a company that has not segmented profit. Use /command when the CEO wants high-touch work on the operating system that includes incentives as one wire among many.

Linking incentives to PGOS and cadence

Profitable growth operating systems fail when the Monday meeting says simplify and the Friday paycheck says add complexity. Segment, simplify, zero-up, grow—the motion taught through The Art of Making Honey and The 80/20 Company—needs a pay wire or it becomes posters.

Put contribution and core growth into the scorecards of people who can exit dogs and densify winners. Put cost into the hands that buy and make. Put price into commercial throats with authority. Then review the scorecard in the same Nerve Center rhythm that reviews the bridge—so pay and operations tell one story.

For the system view of PGOS, see The Profitable Growth Operating System for CEOs. This essay stays on incentives so that essay can stay on the OS.

Closing

Coin Operated is a simple demand with hard implications: pay for the levers people control on the bridge—not activity, attendance, or vanity revenue.

Read Coin Operated. Keep The EBITDA Bridge open while you draft the scorecard. Add Something to Prove when standards and talent density are the constraint behind the numbers. Then install the plan like any other operating instrument: clear owners, clear calendar, no shadow metrics.

We cannot control the market. We can control what we pay for. Choose the coin on purpose.

Practical checklist for the CEO

Before you bless next year’s plan, ask:

1. Can I point each paid metric to a bridge lever?
2. Does every participant have line of sight—or a honest enterprise role that should carry enterprise risk?
3. What gate protects cash and integrity?
4. What dies—old SPIFs, contests, and side deals?
5. Who calculates, who audits, who explains exceptions?
6. If EBITDA misses and bonuses still pay, what story will I tell the board—and is that story acceptable in advance?

If you cannot answer those, you do not have a Coin Operated plan. You have a habit.

A note on proof without theater

Those operating facts explain why incentive design shows up as operating work in my library. They are not a template for your bonus curves. Your curves must come from your bridge, your roles, and your hold clock.

Eighty20 Publishing exists so methods like Coin Operated sit beside the Bridge, the operating system books, and the Install paths that put them to work with a team. Read the method. Wire the pay. Review it weekly like cash—because that is what it is.