Broadway Acts on Sharing Success

untitled12You build it. You buy it. This may become the new mantra on Broadway. The original cast of Hamilton was recently followed by the new cast of Disney’s Frozen in receiving a share of the success of the shows they helped create. Similar to a great tech company building towards an IPO, a Broadway company has to do a whole lot of work before it ever gets to the starting line. Beyond the original idea, words and songs are the testing, tweaks, enhancements and embellishments that can make or break a show.

For years the formula worked like this.

Broadway Show Technology Startup
Idea Idea
Workshops Proof of Concept (POC)
Raise Money Raise Angel Funding
Auditions Build Core Team
Rehearsals Turn POC into Beta
Tryouts Get more money
Previews Get Market Ready, including Revenue Flow
Opening Night IPO
Running on Broadway Trading on the Public Market

The processes to create a successful Broadway show and a thriving technology company are not so different. But, until now, the pay structures followed different paths.

For more than 25 years, tech companies have used equity to share ownership and motivate people to perform better and augment (sometimes) under-market base pay. Before this, company stars sometimes did well, but those who came in early and helped turn a good idea into a great company received little more than experience and the pleasure of the job. Broadway companies are finally seeing the benefit of sharing more than just acclaim.

About a year ago, the cast of Hamilton negotiated a piece of the pie. According to reports, the producer of the show (translate this to the investor of a tech company) advised the cast not to follow this path, but eventually relented. Apparently, lump sum amounts were offered, but the cast understood the long-term value of sharing and held tough until a deal could be met.

Similarly, it was announced last week that the original cast of Disney’s new show, Frozen, will share in their show. It should be noted that these incentive plans are true incentive compensation. The show must reach a defined level of success before the sharing kicks in. This is much like recent equity plans at pre-IPO companies that delay vesting until a successful IPO or other liquidity event. The early performers in these shows have far bigger roles than those who play the same roles later in the shows life. This is also a lot like working at a start-up. You may be writing code one day and designing a company logo the next. When a serial producer like Disney adopts a new practice, it has the chance of moving from unusual to a best practice very quickly.

Lastly, it should also be noted that, much like start-ups, most Broadway shows will not be successful. The producers and investors take big risks when providing early funding. The performers also take big risks. These new compensation programs are unlikely to have an impact on most performers, but they will have great impact on a lucky few. This, lest we forget, is also much like the world of equity compensation at start-ups. It is the risk that drives the big rewards when it comes to equity compensation.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and has been deeply involved in equity compensation for a long, long time. Dan has written several industry resources including the recent Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and a few other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.