This is a private post. Please do not post the URL publicly.


As we wrote in Life at Armory is Awesome, everyone at Armory is on a base + bonus comp plan. This tightly aligns all of our interests. The better Armory does, the more richly each of us is compensated. Here's more detail:

Calculating Compensation:

Let's use two fictional Tribe members to illustrate how this works:

  • Risk Tolerant Tina is energized by risk. She wants to make her comp as aggressive as possible, to maximize the potential benefit, and she's ok with the possibility that her compensation is not as assured.
  • Risk Averse Adam doesn't like risk. He wants to make his comp as stable as possible so he's not up all night worrying about it. He prefers to play it safe to minimize the downsides, even though he may not see as much upside.

For ease of math, the "On Target Earnings" (OTE) for each of them is $100,000 with 100,000 stock options.

Step 1: Cash vs. Equity:

Armory allows you to trade cash for equity, depending on how risk tolerant you are. Whatever percentage of your salary you give up in cash, we'll bump up in equity by the same percentage. So for example:

  • Risk Tolerant Tina wants to lower her cash comp by 20% so she can raise her equity comp by 20%. So she ends up with a $80k OTE cash comp, but that also bumps her stock options up to 120,000.
  • Risk Averse Adam says 'no thanks' to that, and stays at $100k OTE cash comp and 100,000 stock options.

Step 2: Base vs. Bonus:

We measure Armory's progress and success using two sets of metrics:

  • Strategically, we use Key Performance Indicators (KPIs).
  • Tactically, we use Objectives and Key Results (OKRs).

To use an airplane analogy, think of the KPIs as the "navigator" (where we're going) and OKRs as the "pilot" (how we get there). We set & score both monthly. You can find more detail on each below.

The bonus comp for everyone at Armory is determined monthly by Armory's performance against our KPIs. If we score Armory at 50% achievement in a month, we all get 50% of our target bonus comp. If we score at 125% in a month, we all get 125% of our target bonus comp, etc. It's simple and easy, and everyone's in the same boat.

But each of us has different risk tolerances, so we can each choose what percentage of our On Target Earnings (OTE) we want to make bonus vs. base. You can choose from four levels:

Bonus Level
Bonus Multiplier
1% to 9% of OTE
1x Multiplier
10% to 19% of OTE
1.25x Multiplier
20% to 29% of OTE
1.5x Multiplier
30% of OTE
2x Multiplier

The more of your comp you choose to make bonus, the higher your overall comp can be. Here's how it works, using an example:

  • Risk Tolerant Tina's chosen OTE is $80k (because above she choose to swap 20% of her original $100k OTE for equity). Now she has to decide how much of that OTE to make a fixed base vs. a variable bonus.
    She decides to take the maximum 30% as bonus, making her bonus cash compensation $24k (30% of $80k). However, as per the chart above, Armory applies a 2x multiplier to her bonus comp, making it $48k (30% of $80k x 2x multiplier).
    Her base cash compensation is $56k (70% of $80k), for a total OTE of $104k ($56k + $48k).

  • Risk Averse Adam chose to stick with the original $100k OTE. He decides to take the minimum 1% of it as bonus, so his resulting base cash compensation is $99k (99% of $100k), and his resulting bonus compensation is $1k (1% of $100k x 1x multiplier) for a total resulting OTE of $100k.

If Armory achieves it success metrics at 100% each month for the year, Tina and Adam each make their On Target Earnings.

However, what about some months where Armory overachieves or underachieves? Here's how that looks:

Bonus comp is calculated monthly. Let's take a fictional month where Armory achieved just 65% of its KPI goal for the month.

Risk Tolerant Tina's compensation for the month would look like this:

Armory Achieves 65% of KPI Goal  
=================
Base Salary: $56,000 base salary ÷ 12 = $4,666.67

Bonus: $48,000 bonus ÷ 12 = $4000 x 0.65 Company KPI achievement  
for the month = $2,600.  
=================
TINA'S TOTAL COMP FOR THAT MONTH: $7,266.67  

Risk Averse Adam's compensation for the month would look like this:

Armory Achieves 65% of KPI Goal  
=================
Base Salary: $99,000 base salary ÷ 12 = $8,250

Bonus: $1,000 bonus ÷ 12 = $83.33 x 0.65 Company KPI achievement  
for the month = $54.17.

ADAM'S TOTAL COMP FOR THAT MONTH: $8,304.17  

Adam earns $1,037.50 more than Tina that month. However, what if Armory overachieves and hits 135% of its KPIs for the month?

Risk Tolerant Tina's compensation for the month would look like this:

Armory Achieves 135% of KPI Goal  
=================
Base Salary: $56,000 base salary ÷ 12 = $4,666.67

Bonus: $48,000 bonus ÷ 12 = $4000 x 1.35 Company KPI achievement  
for the month = $5,400.

TINA'S TOTAL COMP FOR THAT MONTH: $10,066.67  

Risk Averse Adam's compensation for the month would look like this:

Armory Achieves 135% of KPI Goal  
=================
Base Salary: $99,000 base salary ÷ 12 = $8,250

Bonus: $1,000 bonus ÷ 12 = $83.33 x 1.35 Company KPI achievement  
for the month = $112.50.

ADAM'S TOTAL COMP FOR THAT MONTH: $8,363.50  

In a month where Armory does well, Tina also does well and makes $1,703.17 more than Adam -- however, Adam's comp is much more stable.

Remember both Tina and Adam had the same OTE and equity to start with; they just made different decisions based on their risk tolerance levels. We want to allow you to make a decision that's right for you.

isaac
Want to model some numbers out? Get a copy of our comp calculator and play with the numbers yourself.

Let us know if you have any questions!

Measurement Deep Dive:

Here is more detail on how we measure Armory's success, monthly:

Horizon Key Performance Indicators ("Horizon KPIs"): In an airplane analogy, think of KPIs as the "navigator," aka where we're going. These are the strategic metrics that define how Armory will ultimately succeed. We call them "Horizon" KPIs because they define the next big achievement goal for Armory -- the one just over the horizon.

Here's how they work:

The next horizon milestone for Armory is to raise our Series A. In order to achieve that successfully, we must hit the following KPI by 1Q18:

(we're not publishing the actual number on this private blog post, but we'll share them to you once you join our tribe)

Each month, we score Armory's progress against this KPI, and that determines everyone's bonus comp for the month (as explained above).

Objectives & Key Results (OKRs): In the airplane analogy, think of OKRs as the "pilot," aka how we get there. OKRs are the tactical way we execute on our Company Success Metrics. Importantly (and in contrast to KPIs), we do not tie any financial incentives to OKRs. When we're planning and measuring our tactical progress monthly, we want to be aggressive vs. timid on setting tactical objectives.

Rick Klau of Google Ventures explains OKRs in detail in the hour-long video below. Tl;dr: If you don't want to watch the whole video, here's a Cliffs Notes blog that gives the highlights and here's a good Business Insider article about it.

Notes from Rick's video:

  • Rick recommends the entire company do a 1 quarter test to try OKRs out. He recommends:
    • First, communicate company objectives
    • Team & personal OKRs flow from there
  • OKRs were an immediate hit within the company when implemented, because it gave everyone a way to quantify, with data, the goals, and whether they were meeting expectations.
  • Essential that OKRs be measurable. "It's not a key result unless it has a number"
  • Everyone's OKRs are public within the company -- from Larry & Sergey on down.
  • When John Doerr was pitching the idea of OKRs to Larry & Sergey in '99, he even made an OKR for the pitch deck itself. Here's a screenshot. That's pretty cool.
  • There's a good example at 8:47 about how to connect company --> team --> individual objectives using a 49ers football example Target should be .6 or .7 -- goals should feel uncomfortable
    • ".2 or .3 or .4 is not a failure, it's just data -- use it to figure out what to stop doing. What prevented you from delivering? The scores help you know what not to do, what to change, what to do more of."
  • 14:10 - Not every team goal would be considered a company objective; but overall they roll up to achieve company objectives Company OKRs are communicated at company meeting, and team owners share the team OKRs
    • Team leads share score from last quarter, why, and what you'll do differently in quarter ahead; what did we learn?
    • 23:20 - 'Some Basic Hygiene'
    • Maximum 5 objectives with 4 key results
    • More than half of company's objectives come from bottom up ("let [the team] tell you what they think is the best use of their time and talent")
    • Everyone must agree; no dictating
    • OKRs are NOT a performance evaluation tool.
  • OKRs are set both quarterly and annually -- however annual OKRs can be revised over the course of the year; they are directional aides

Here are some great resources to learn more about OKRs: