The Four Quadrants of Compensation
Great pay packages hit all four: salary, 401k, profit-sharing, and equity.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 88%
Barry frames compensation as a 2x2 grid: guaranteed versus performance-based across the top, short-term versus long-term down the side. Salary is short-term guaranteed; a 401k match is long-term guaranteed; profit sharing is short-term performance-based; and equity is long-term performance-based. He argues the best packages hit all four quadrants so employees get stability and upside, rather than a low-salary moonshot bet or an all-cash arrangement that pays nothing at exit. All equity he has given away has gone to his team, vesting over four years with refresher grants.
Origin
As an 85%-owner bootstrapper who gave equity only to his team, Barry developed this grid to explain how he keeps long-tenured employees deeply invested and aligned — explicitly contrasting it with Mailchimp, which never sold and paid only cash, so when it did sell for $12 billion its employees barely benefited.
Core principles
- 01Compensation spans two axes: guaranteed vs. performance-based, and short-term vs. long-term.
- 02The best packages cover all four quadrants rather than over-indexing on one.
- 03Deeply invested team members (via equity) stay aligned for the long run.
- 04Avoid both the low-salary-big-moonshot extreme and the all-cash-no-equity extreme.
How to run it
- 1
Draw the 2x2 grid
Set guaranteed vs. performance-based across the top and short-term vs. long-term down the side to create four compensation quadrants.
- 2
Cover short-term guaranteed — salary
Pay competitive, dependable salaries so team members have immediate financial security.
- 3
Cover long-term guaranteed — 401k match
Contribute to retirement so employees build guaranteed long-term wealth regardless of company outcome.
- 4
Cover short-term performance — profit sharing
Share current profits so the team is rewarded now for the results they help produce.
- 5
Cover long-term performance — equity
Grant equity that vests over four years with refresher grants so long-tenured team members share in the upside and stay aligned.
Pro tip Refresher grants keep people who've been on the team 8+ years continually invested.
Watch out Don't skew to a low-salary, big-equity moonshot — it puts unfair risk on employees.
In the wild
Barry pays good salaries, contributes 401k, shares profit, and grants vesting equity — deliberately walking the middle line. He contrasts this with Mailchimp, which declared it would never sell and paid only cash, so when it eventually sold for $12 billion its employees barely made anything.
→ Kit retains deeply invested team members (several 8+ years) who are aligned on both current results and long-term upside.
Common mistakes
The low-salary moonshot
Paying almost nothing but promising a big equity payout 'if we hit it big' loads unfair risk onto employees and fails most of the time.
The all-cash, never-sell trap
Paying only cash and never granting equity means employees miss out entirely if the company ever does sell, as happened at Mailchimp.
Is it for you?
Best for
Founders and leaders designing balanced, retention-focused compensation for a core team.
Not ideal for
Solo operators with no employees, or very early ventures unable to fund multiple compensation types.
From the transcript
“I actually think about compensation in four quadrants... guaranteed versus performance-based, and then along the side we have short-term versus long-term”
“the best compensation packages for your team really hit on all four of those things”
From the episode
Nathan Barry: The Ladders of Wealth, How to Build a $40M Creator Business from Scratch
Nathan Barry