Profit sharing
Let's discuss profit sharing. Tech pros who are entitled to a piece of the pie will certainly be motivated to ensure the project is a success. What are some of the common structures for profit sharing? Are there any authorities on this subject in the house? If not, please invite some!
Replies to This Discussion
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Permalink Reply by Scott Smith on -
I am not an authority but here is how we do it. We have a quarterly bonus structure. This structure is based on several criteria.
1. How billable you are: this works well if you can bill your time to someone like in a consulting company or software company. This could also work if you tracked how much time your IT staff spent assisting various departments within the same organization. If your team does not support them it would have to be outsourced and that would have to come out of their cost center.
2. Continuing Education: Certifications, self paced study, seminars etc.
3. Years of experience: There is something to be said for those who have been around the block they have seen allot and come from diverse backgrounds.
4. Individual accomplishments which bring value, revenue, or saving to the organization
5. The company meeting its financial goals.
Each category has a percentage value on how much that category figures into you bonus.
Awarding ownership could be real tricky. This would have to be for real exceptional work, dedication, self sacrifice, or for being a charter member of a startup. I have noticed that most IT professionals move on to other challenges after 3 or 4 years so this could be hard to calculate.
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Permalink Reply by Kevin Jenkins on -
Ray Cassick wrote:
"I have always found that stock options (depending the country and thus any tax implications) is a good motivator for technically oriented folks. They usually understand the value of them and can appreciate it. It matters more so if the company is publicly traded obviously since the shares have a more immediate value but even for a private company they can hold significance to someone deeply involved in the company."
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Permalink Reply by Bradley Holt on -
Well, I'm no finance expert but my guess is equity of some sort would be a good motivator. This could be done through stock or stock options. This is applicable to any employee in a start-up, not just developers. Having said that, it's not just money that motivates developers. Many developers are motivated to work on interesting or challenging projects. Also, some amount of say in the decision making process behind technology choices would motivate many developers. The big thing is not being a cog-in-the-wheel but instead someone who is engaged in making things happen.
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Permalink Reply by Kevin Jenkins on
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Blessen Cherian wrote:
The best is to start with PE (performance Evaluation) . Let the real performers benefit or get the share of profitability. Once the PE process is set and trial run for a year, then link it with Salary. This is the toughest part and should have detailed study before new system is built. While building the new salary system, make sure that you have a variable incentive components which will be linked to company's overall profitability.
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Permalink Reply by Kevin Jenkins on
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Michael Ackerman wrote:
There are many ways and to some extent it depends upon the person.
Equity is a good way and one that most people can relate to but also can have some negatives depending upon how the company is funded: Founder self funding vs. VC or other equity fund vs. partnership funded, etc. Also other decisions need to be reached before the equity or stock is granted. For example, a decision needs to be made regarding whether or not the stock has voting rights.
Profit sharing is another good way; it gives them a slice of the pie and can be made perpetual like an equity stake, or only for some many years after they leave the employment of the company. The option gives the company more direct control over the benefit but still gives the receiver the benefit they deserve.
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Permalink Reply by Dann F on -
The word is stock, that is spelled S T O C K. In spite of the present downturn in the economy and the terror that word invokes in the hearts of the uninformed, company stock is the best business motivator on the planet. A few years back I worked for a little company in the midwest called Procter and Gamble; you may have heard of them. Their stock sold yesterday at $62 plus a few pennies. In the 1960's it sold for about $62 a share, in the 1910's it sold for about $62 per share. Yet every P&G employee owns stock. They know on a daily basis what the price is. If you slack off on the job, watch your back, because the guy standing close to you has a hip pocket full of stock and he's not going to let you get away with it. So. if the stock price is about the same as it was 100 years ago, where's the motivation? Well the P&G Managers, the geeks, the plumbers, and the janitors know that at 60-100 bucks they can buy an extra share now and then without breaking the bank. The company helps by having local 'desks' where you can buy and sell stock whenever you want. Thy also know that the average company growth is 15% per year and that the Board splits the stock every time it hits 100.... the growth thus occurs in spurts, so they play the market with one stock (buy high, sell low???). I worked there for 7 years, and I never met an employee who wasn't a "Company Man" (or Woman). I never met a manager who wasn't doing all he could to see that his staff had the tools and working conditions and education necessary to make them comfortable and make the company (definition of company: 'a group of people') grow in value. Think of 140,000 motivated employees in one company, making rather unexciting, bland-image products... the word is STOCK!
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Permalink Reply by Melissa D. Nourigat on -
As an Admin I was given 150 restricted shares as part of my performance package, those shares didn't amount to a dollar when they vested, in fact they were -$7.00 of what they were rated at when vested. The worst part of it was I didn't understand what this meant, now I do, the shares would have to earn above the purchase price in order to gain anything. When I left the company, they were worthless. We had profit sharing as well and that was the bonus to look forward to. Profit sharing is a much better option and should be excercised regularly. That is a guaranteed portion and not carrot. My job role is just as important as roling out a project - if the manager doesn't make it to his meetings, travel, and have all his ducks in a row he fails. Admins manage people, events, materials and timing. The Admin keeps the wheels of progress turning by a keen eye on the ball and monitoring business objectives to anticipate the priorities. Every employee deserves a valued piece of the pie, but the company needs to be careful how that is divided up so you don't have to offer empty promises.
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