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I was speaking to an employment lawyer about how to structure the business I'm trying to start. I wanted partial ownership from all employees and, more importan

I was speaking to an employment lawyer about how to structure the business I'm trying to start. I wanted partial ownership from all employees and, more importantly, aggressive profit sharing. The particular models that I wanted to look at - the partial ownership - turns out to be incredibly expensive when hiring on new employees - from what I've understood - and so I'm leaning in to the profit sharing model, hard, and perhaps the company design will be one that enforces that aggressively. I didn't understand everything the employment lawyer was discussing and it was just a preliminary discussion. I think it's worth it for every person interested in starting a business to work with and speak with a lawyer. I'm not really much of a fan of everyone owning stock, though, myself - especially everyone gaining stock over time. There's a million ways to build a company, of course. Giving employees stock over time seems like it could be a good plan if there is real intent to become publicly traded at some point. I personally wouldn't want the profit sharing to be tied to a stock amount. It would reward seniority or tenure a bit too much (in my opinion). A system I would prefer would be one where: * all employees regular salaries and all business costs are paid * a reserve 'warchest' is kept or grown where the goal 'size' of the 'warchest' is relative size to keep the company afloat for x years of low or zero income (to survive bad years). * profit share "the rest" (or most of the rest). Exact specifics of the profit-sharing could be unclear. Could be: * a flat "every employee gets 1/(# employees) the rest". * each division gets a percentage and then each employee in that division gets 1/(# employees in division) * a point system where tenure gives you more points and you get Xi/(sum X) portion. Lots of options. I prefer profit-sharing myself because it doesn't lean in the direction of becoming public and everyone experiences the fruit of their and their coworkers' labors. I've been warned a bit against partial ownership because "what if the existing employees don't want to be profit sharing anymore", etc? I dunno. Lots of thoughts.

etothepii 2y ago
I'm interested in why you want to do this? What is the goal you are trying to achieve? Why would you not do this with salaries? Will there be some people paid more than others that do different roles? If so, why would their profit shares be the same? Who decides on war chest size? Ownership is an interesting word, because as you say if it was ownership then when an employee leaves they still get a share of profits and surely they could sell (otherwise it's not ownership). I've wondered myself about whether I should have some sort of union but what I really mean is an alternate reporting line to hear about problems. My suspicion is that there's a lot of what founders think of as profit that isn't really profit. My founder salary is probably around 25% of what I'd need to be willing a job. I'd everyone at the company did this we'd have a lot of extra "profit" to share out but it isn't real profit.
- t-writescode 2y ago
  These are some great questions! I'll work through them one-by-one. > (edit: sorry, I missed this one!) why you want to do this? I believe in pay transparency and paying people for the value they bring to a company. I don't like it when there's a call center with everyone making a dollar above minimum wage, when they take the pain of all the poor decisions people who make 5-10x what they do made. > What is the goal you are trying to achieve? A greater alignment to the earnings someone makes for the company and their earnings out of the company. > Why would you not do this with salaries? I believe a salary is a promise, something that can be consistently relied upon. Profit sharing is above and beyond that. > Will there be some people paid more than others that do different roles? Since a salary is a promise, yes. It also allows for more tenured and skilled employees to "grow" in the company. Generally a more senior person has more responsibilities and my promise to them should correlate well with that. > If so, why would their profit shares be the same? Undecided > Who decides on war chest size? Probably a collection of employees, including the CEO, and it would be the sum of company expenses for a certain number of years, including cost of living adjustments. > but what I really mean is an alternate reporting line to hear about problems I hadn't considered that as a use of a union and I think I like it. I should think on this more. > My suspicion is that there's a lot of what founders think of as profit that isn't really profit. (and the added part about you underpaying yourself) Probably! In my context regarding profit sharing, I am thinking that everyone is making an appropriate salary already - before that, it's not really profit. Admittedly, given the structure, the official salary would probably be a little below market rate; but again, that's just the promise of minimum payment and when profit sharing went into full swing, I would like to think it would increase those numbers.

etothepii 2y ago

I'm interested in why you want to do this? What is the goal you are trying to achieve? Why would you not do this with salaries? Will there be some people paid more than others that do different roles? If so, why would their profit shares be the same? Who decides on war chest size? Ownership is an interesting word, because as you say if it was ownership then when an employee leaves they still get a share of profits and surely they could sell (otherwise it's not ownership). I've wondered myself about whether I should have some sort of union but what I really mean is an alternate reporting line to hear about problems. My suspicion is that there's a lot of what founders think of as profit that isn't really profit. My founder salary is probably around 25% of what I'd need to be willing a job. I'd everyone at the company did this we'd have a lot of extra "profit" to share out but it isn't real profit.

t-writescode 2y ago
These are some great questions! I'll work through them one-by-one. > (edit: sorry, I missed this one!) why you want to do this? I believe in pay transparency and paying people for the value they bring to a company. I don't like it when there's a call center with everyone making a dollar above minimum wage, when they take the pain of all the poor decisions people who make 5-10x what they do made. > What is the goal you are trying to achieve? A greater alignment to the earnings someone makes for the company and their earnings out of the company. > Why would you not do this with salaries? I believe a salary is a promise, something that can be consistently relied upon. Profit sharing is above and beyond that. > Will there be some people paid more than others that do different roles? Since a salary is a promise, yes. It also allows for more tenured and skilled employees to "grow" in the company. Generally a more senior person has more responsibilities and my promise to them should correlate well with that. > If so, why would their profit shares be the same? Undecided > Who decides on war chest size? Probably a collection of employees, including the CEO, and it would be the sum of company expenses for a certain number of years, including cost of living adjustments. > but what I really mean is an alternate reporting line to hear about problems I hadn't considered that as a use of a union and I think I like it. I should think on this more. > My suspicion is that there's a lot of what founders think of as profit that isn't really profit. (and the added part about you underpaying yourself) Probably! In my context regarding profit sharing, I am thinking that everyone is making an appropriate salary already - before that, it's not really profit. Admittedly, given the structure, the official salary would probably be a little below market rate; but again, that's just the promise of minimum payment and when profit sharing went into full swing, I would like to think it would increase those numbers.