4 ms·

In my experience, people would rather be employees paid in cash whose amount is agreed ahead of time than partners where they're paid depending on the company's

In my experience, people would rather be employees paid in cash whose amount is agreed ahead of time than partners where they're paid depending on the company's profits.

teaearlgraycold 3y ago
I have been wondering if you could make it work in Silicon Valley for a small firm. Take 2-10 people that could be founders and give them the alternative of being the Nth partner. They’d need to bring in 1/N of the profit to earn their keep. I think it’s doable.
- monknomo 3y ago
  I have long suspected a model like this, borrowing from lawyer shops and worker co-ops, could be pretty good for software. Since software is sort of inherently project based, could have a mix of product and contracting, and could have wins both on the co-op side and whoever the co-op is doing work for/selling product to
- s1artibartfast 3y ago
  They already exist, but aren't especially common. As you point out, the challenge is always around revenue sharing. From what I have seen, they last maybe 5 years and then break up when people feel like they are putting in more than they are getting out. The productive difference between the top and bottom half of the N needs to be less than the extra efficiency the coop provides the top half of N. This isn't easy. Eg top performer brings in 150k revenue, receives 100k salary, but can only make <100k without the coop.
  - teaearlgraycold 3y ago
    Others have brought up this issue when I’ve discussed it with them. I wonder if there’s a solution. Perhaps something in game theory? When productivity is more easily measured then there’s little debate - like making commission on sales.
    - s1artibartfast 3y ago
      There are a lot of solutions, each with different tradeoffs. By far the most common solution seen is limited Partnerships, where those individuals with enough Revenue and Leverage become the co-owners, and those that are replaceable are not co-owners but receives the salary based on Market rates. I'm sure commission works well in companies where individual basically Works in isolation, but it is notoriously difficult to quantify productivity in teams and larger organizations. How much value does a engineer at Google create? Does a janitor at Google create? Of course you can divide the company profit by headcount, but that number is largely meaningless. Some people will be far higher some people will provide negative value. For a co-ops, I think the game theory solution quickly converges on something that looks like a traditional company. You pay employees a market salary, and then split the corporate dividend proportional to salary. To account for differences in performance, the employees hire management too fire workers and give out raises. This works well for large co-ops, but obviously can lead to a lot of drama for a 10-person company
harimau777 3y ago
I think that could change if the workers are not living paycheck to paycheck. It would also probably be possible to develop some sort of middle ground. For example, workers could be paid a conservative salary and then profits could be distributed as a bonus at the end of the year.
- Nasrudith 3y ago
  It could with hierarchy of needs, but what would the gain really be of doing so? Mostly ideological. And that is putting aside any of the other 'competitive balance issues' vs other business structures.
RetroTechie 3y ago
Depends on how much say they have. If employees have no say in how the company is run, CEO & board could easily run it into the ground (but jump ship with a gold parachute), then: yeah, most people will prefer a fixed paycheck. But if regular employees are at the helm, company is more likely to do what's in the (long-term!) interest of employees. Surely that'll make employees more willing to share in financial risks (+rewards!) of the organization. They're more personally invested in it - literally. Let's hope this model gains more traction.
InitialLastName 3y ago
Doesn't that depend on how profitable the company usually is? I know plenty of people in the finance world who, if paid only their salary, would be searching for a different job.
- mgaunard 3y ago
  The upside is larger, but is longer-term and uncertain. You don't get the offer in the first place if it is certain.

In my experience, people would rather be employees paid in cash whose amount is agreed ahead of time than partners where they're paid depending on the company's profits.

teaearlgraycold 3y ago

I have been wondering if you could make it work in Silicon Valley for a small firm. Take 2-10 people that could be founders and give them the alternative of being the Nth partner. They’d need to bring in 1/N of the profit to earn their keep. I think it’s doable.

monknomo 3y ago
I have long suspected a model like this, borrowing from lawyer shops and worker co-ops, could be pretty good for software. Since software is sort of inherently project based, could have a mix of product and contracting, and could have wins both on the co-op side and whoever the co-op is doing work for/selling product to
s1artibartfast 3y ago
They already exist, but aren't especially common. As you point out, the challenge is always around revenue sharing. From what I have seen, they last maybe 5 years and then break up when people feel like they are putting in more than they are getting out. The productive difference between the top and bottom half of the N needs to be less than the extra efficiency the coop provides the top half of N. This isn't easy. Eg top performer brings in 150k revenue, receives 100k salary, but can only make <100k without the coop.
- teaearlgraycold 3y ago
  Others have brought up this issue when I’ve discussed it with them. I wonder if there’s a solution. Perhaps something in game theory? When productivity is more easily measured then there’s little debate - like making commission on sales.
  - s1artibartfast 3y ago
    There are a lot of solutions, each with different tradeoffs. By far the most common solution seen is limited Partnerships, where those individuals with enough Revenue and Leverage become the co-owners, and those that are replaceable are not co-owners but receives the salary based on Market rates. I'm sure commission works well in companies where individual basically Works in isolation, but it is notoriously difficult to quantify productivity in teams and larger organizations. How much value does a engineer at Google create? Does a janitor at Google create? Of course you can divide the company profit by headcount, but that number is largely meaningless. Some people will be far higher some people will provide negative value. For a co-ops, I think the game theory solution quickly converges on something that looks like a traditional company. You pay employees a market salary, and then split the corporate dividend proportional to salary. To account for differences in performance, the employees hire management too fire workers and give out raises. This works well for large co-ops, but obviously can lead to a lot of drama for a 10-person company

harimau777 3y ago

I think that could change if the workers are not living paycheck to paycheck. It would also probably be possible to develop some sort of middle ground. For example, workers could be paid a conservative salary and then profits could be distributed as a bonus at the end of the year.

Nasrudith 3y ago
It could with hierarchy of needs, but what would the gain really be of doing so? Mostly ideological. And that is putting aside any of the other 'competitive balance issues' vs other business structures.

RetroTechie 3y ago

Depends on how much say they have. If employees have no say in how the company is run, CEO & board could easily run it into the ground (but jump ship with a gold parachute), then: yeah, most people will prefer a fixed paycheck. But if regular employees are at the helm, company is more likely to do what's in the (long-term!) interest of employees. Surely that'll make employees more willing to share in financial risks (+rewards!) of the organization. They're more personally invested in it - literally. Let's hope this model gains more traction.

InitialLastName 3y ago

Doesn't that depend on how profitable the company usually is? I know plenty of people in the finance world who, if paid only their salary, would be searching for a different job.

mgaunard 3y ago
The upside is larger, but is longer-term and uncertain. You don't get the offer in the first place if it is certain.