On Tuesday, I had lunch with a friend from college I hadn't seen in many years. We spoke for a long time on a broad range of topics, but one of the ideas he shared that I've been ruminating on since is this:
The core of a CFO's role is managing incentives.
Not budgets. Not board decks. Not models. Not system implementations. Incentives.
Generally speaking, most employees focus on completing the work or tasks they've been assigned and fulfilling the expectations that have been communicated to them. They aren't terrible, and they're not rockstars. They're a 3 out of 5. Solid. Reliable. Satisfactory. They inhabit the middle of the employee performance bell curve. Sure, there are 2s and there are 4s, and there are outliers, but over time, performance regresses toward the middle.
The question for leadership, and especially for a CFO, is simple: How do you move the average employee from a 3 to a 4?
Because if you can move the middle, you move the whole company.
Incentives Are the Hidden Lever
When most people think about CFO work, they think about "big" money: capital structure, fundraising, M&A, bank covenants, board meetings.
All of that matters. But quietly, another lever is doing just as much damage or good: how people inside the company are acknowledged and rewarded.
Incentives like compensation plans, bonuses, quotas, promotion criteria, and even budget approval rules will negate your company's strategy if they're misaligned.
Employees will naturally reverse-engineer incentives based on how they're rewarded and what gets praised.
- If you pay on top-line revenue only, don't be surprised when margins erode.
- If you reward "staying within budget" but never recognize smart risk-taking, don't be surprised when innovation stalls.
- If you celebrate firefighters more than people who prevent fires, don't be surprised when everything is always on fire.
This is where the CFO should live: at the intersection of the numbers and behavior.
Different Teams, Different Incentives
Part of what makes this task challenging and why it requires skill is because you can't just copy-and-paste incentive structures across the organization.
Different functions play different games:
- Sales is usually focused on short-to-medium-term revenue and relationships.
- Admin/operations is focused on reliability, accuracy, and keeping the machine running.
- R&D/product is focused on longer-term bets, learning, and uncertainty.
If you pay all three groups like sales, you'll break the company. If you pay all three like admin, you'll grind to a halt. If you pay all three like R&D, you'll run out of cash.
A CFO who understands this starts asking better questions: for Sales, "How do we balance closing deals with protecting margin and cash flow?" For Admin/Finance/Operations, "How do we reward accuracy and reliability without turning every decision into a 'no'?" For R&D/Product, "How do we reward learning and progress, not just home runs?"
You're not just designing compensation plans. You're designing behavior.
Avoiding Perverse Incentives
The dangerous incentives are the subtle ones: the ones that look smart on a slide but are destructive in practice.
A few common examples:
- Revenue-only bonuses that encourage aggressive discounting just to "make the quarter," while gross margin and cash suffer.
- Departmental budget protection where leaders are incentivized to "use it or lose it," so money gets burned on low-value spend at year-end.
- Activity-based metrics (calls, tickets, hours in the office) that reward looking busy instead of driving outcomes.
- R&D milestones tied only to shipping features, not customer adoption or business impact.
On paper, all of these may appear "data-driven." But in reality, they teach people how to game the system.
A good CFO doesn't just ask, "What does this incentive cost?" They ask, "What behavior does this incentive buy?"
The Quiet Compounding of 3s Becoming 4s
This also means that you don't need everyone to be a 5. In fact, designing for "5-only" performance often backfires. You burn people out, create constant pressure, and then wonder why turnover is high.
A healthier, more realistic goal is to systematically move your average performers up: the salesperson who was phoning it in hits 105% of quota instead of 92%, with healthy margins. The ops manager who avoided decisions starts proactively fixing bottlenecks. The product team that shipped features in a vacuum starts tying their work to measurable outcomes.
Those feel like small shifts at the individual level. But at scale, if most of your "3s" start behaving like "4s," your company's performance doesn't just improve by some fixed percentage. It will feel like the company has shifted into a different gear entirely.
And that doesn't show up as a neat line item called "CFO Impact" on the P&L. It shows up as fewer bad deals, better margins, less waste, faster iteration, and a team that can actually execute the strategy you keep presenting to the board.
What This Means for the CFO Role
So yes, the CFO is responsible for managing the big items: capital, cash, risk, and reporting.
But if you stop there, you'll miss a huge part of your potential impact.
A high-leverage CFO translates strategy into numbers, translates numbers into incentives, and translates incentives into behavior. And then they keep tuning that system.
Because the real art isn't moving a few top performers from a 4 to a 5. It's building a structure where a large chunk of your organization quietly shifts from "doing their job" to "owning outcomes."
That doesn't make headlines. It doesn't look glamorous. But if you get the incentives right (across sales, admin, ops, and R&D), it has a tremendous impact on long-term value and company culture.
Sometimes, the most valuable work a CFO does isn't in how they handle millions of dollars. It's how they turn a 3 into a 4.
What do you think of this idea? Where have you seen incentives quietly drive behavior in a direction leadership never intended?