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What's so wrong with simple profit sharing? The only place I've worked at (or even heard of, for that matter) that implemented a form of true profit sharing wa

by m104 18y ago

What's so wrong with simple profit sharing? The only place I've worked at (or even heard of, for that matter) that implemented a form of true profit sharing was Outback Steakhouse. Servers got tips, so are exempt, but hosts, cooks, and bussing staff got cold hard cash on their next work day that came straight from the profits of the entire restaurant from their previous work day. Simple, effective, and gloriously rewarding. For an IT shop, each worker's salary/wage sets their base pay and is confidential, while a biweekly or monthly "bonus" check could be the profit sharing reward. In that environment, everyone knows when business is going well and everyone knows when it isn't. Profit sharing can (and should) be open for discussion among all employees. So, take Joel's example: Noah helps make an additional $1 million in a year for Fog Creek. What's that going to translate into for each employee's profit sharing check? I'll assume that Joel's generous, and that the ads are wonderfully profitable, so let's say an additional $400/mo/employee (average) while the ads are active. Holy shit, Noah, thanks! So, Noah get's more. Noah gets recognitions. Noah's coworkers get more. The company makes more. Hell, even Joel gets to make more. It's win/win/win/win. And don't get me started on company stock. Stock is fine in many cases, but that's not what successful organizations make. They make money! Share it with the employees. They deserve it. 'Cause here's the thing: If your take-home wage isn't tied to your performance or the performance of the company as a whole, what exactly is everyone's motivation? Oh, sure, some people are going to do a great job no matter what, but that's not what really makes a company great, now is it?

wizard_2 18y ago
I would love to hear a reply to this. One of the most successful businesses in my neighborhood is a cooperatively owned bagel shop. They've got a bunch of locations now, and they always hustle to make your bagel. I'm not very familiar with the business model though, especially with regards to businesses that don't sell bagels but make software, or sell services.
- m104 18y ago
  It's not really a new business model or anything, but the simple idea (which some companies successfully implement) that some portion, say 30%, of the organization's net profit of each pay period is divided up by the number of workers (non-management, non-executive employees) and dispersed to those workers at the next pay period. Bonuses, retirement plans, health benefits, and all other incentives are still set at management's discretion, but are funded with the other 70% of the profit. It's really that simple. Realize too, that simple profit sharing coexists with the normal grading of wages based on whatever position/seniority algorithm the organization uses. So you're guaranteed, as a developer or designer or whatever, to make your normal wage and be considered for increases. But every pay period would have that profit sharing bonus that shows you how the business is doing and exactly how much your organization values your contribution. Stock-based incentives are supposed to fulfill this role, but they're often given out after some major event and then only to the most visible members of the contribution. Arbitrarily, in other words. Holiday bonuses are nice, too, but they are supposed to be confidential in most organizations (creating uncomfortable speculation and comparisons) and can lead to unmet expectations.
Erwin 18y ago
If the profit sharing income is significant that may pit ordinary workers against owners who want to expand the business. E.g. if you are on route for $100k profit this year it might be better to invest that profit in the company by hiring another salesperson that sells even more next year. If you own the company you generally decide your own compensation and you might be more interested in working towards selling the company off anyway. Perhaps if the IT company was one with hourly billing you could have a more law-firm like "partner" system where some senior people have more say and a share of the profits.
delackner 18y ago
The answer is that profit sharing IS awesome, and companies that treat their employees that way see their employees start to act like family members in a way that no performance bonuses ever can. Where I work, 25% of the profit from each of our product lines goes directly to the team that produced that product, and the whole company has bonuses separately based on whether the company is making money or not (making money-> everyone gets a bonus). I'm not sure whether this is better than profit being shared across the whole company or not, as it has the positive side that people want to work on projects that they personally feel will succeed, yet the negative side that people stuck working on maintaining legacy products or projects they don't believe as much in end up demotivated.

by m104 18y ago

wizard_2 18y ago

I would love to hear a reply to this. One of the most successful businesses in my neighborhood is a cooperatively owned bagel shop. They've got a bunch of locations now, and they always hustle to make your bagel. I'm not very familiar with the business model though, especially with regards to businesses that don't sell bagels but make software, or sell services.

m104 18y ago
It's not really a new business model or anything, but the simple idea (which some companies successfully implement) that some portion, say 30%, of the organization's net profit of each pay period is divided up by the number of workers (non-management, non-executive employees) and dispersed to those workers at the next pay period. Bonuses, retirement plans, health benefits, and all other incentives are still set at management's discretion, but are funded with the other 70% of the profit. It's really that simple. Realize too, that simple profit sharing coexists with the normal grading of wages based on whatever position/seniority algorithm the organization uses. So you're guaranteed, as a developer or designer or whatever, to make your normal wage and be considered for increases. But every pay period would have that profit sharing bonus that shows you how the business is doing and exactly how much your organization values your contribution. Stock-based incentives are supposed to fulfill this role, but they're often given out after some major event and then only to the most visible members of the contribution. Arbitrarily, in other words. Holiday bonuses are nice, too, but they are supposed to be confidential in most organizations (creating uncomfortable speculation and comparisons) and can lead to unmet expectations.

Erwin 18y ago

If the profit sharing income is significant that may pit ordinary workers against owners who want to expand the business. E.g. if you are on route for $100k profit this year it might be better to invest that profit in the company by hiring another salesperson that sells even more next year. If you own the company you generally decide your own compensation and you might be more interested in working towards selling the company off anyway. Perhaps if the IT company was one with hourly billing you could have a more law-firm like "partner" system where some senior people have more say and a share of the profits.

delackner 18y ago

The answer is that profit sharing IS awesome, and companies that treat their employees that way see their employees start to act like family members in a way that no performance bonuses ever can. Where I work, 25% of the profit from each of our product lines goes directly to the team that produced that product, and the whole company has bonuses separately based on whether the company is making money or not (making money-> everyone gets a bonus). I'm not sure whether this is better than profit being shared across the whole company or not, as it has the positive side that people want to work on projects that they personally feel will succeed, yet the negative side that people stuck working on maintaining legacy products or projects they don't believe as much in end up demotivated.