09 Jun 2006

To the Point of Profit Sharing – Advice?

Where we’ve been to where we’re going.

From 1999 to late 2002, the "We" in We Build Pages was Me, Myself, and I. During those day I also waited tables and worked for a few design companies as their "Internet Marketing Specialist". Those years were "lean" but I could always wait tables as many days a week as I needed.

In 2003 We Build Pages went up to 9 people (I hired my first employee in Dec 2002). Sales rocketed, and then Florida hit in November and took away 2 of our biggest clients….who happened to account for 1/3 Each of our total income…overnight we lost 2/3’s of our income….not fun.

2004 the first half of the year was a loss (I invested in more people, diversified our services…and ended up anyways back at focusing on link building services – it’s what everyone wanted). The second half was good..so we ended up somewhere around evenish.

2005 was the first "good" year. We made some profit with a 90% focus on link building services.

The first half of 2006 was best it’s ever been and the second half of 2006 looks like it easily has potential to be "really good".  2007 looks like it could be "wicked nice" if things work out as planned. (remember we also have several hundred of our own sites 😉 ).

So now we’re making some profit, and I want to pass some of that on to my employees so that if we continue to do better, they all continue to do better.  I’m going to be looking into some profit sharing plans next week.

Does anyone have experience or advice?

Comments

  1. jim (bargaineering) June 10, 2006 at 9:43 AM

    You could consider some performance based incentives as a means of profit sharing.

  2. LittleME June 10, 2006 at 10:06 AM

    How much do you pay for this…?

  3. stevepfseo June 10, 2006 at 10:38 AM

    Jim set specific milestones the employees individually or as a group can reach. Make it obtainable, but a challenge.

    State a clear percentage to be earned individually or collectively.

    For example A link builder has to get 10 edu’s per month to receive x

    or

    A writer has to write one hundred four hundred word articles for clients and twenty one thousand word articles per month for WBP promotion. to receive the profit sharing.

    IMO above all make the goals very clear. I saw profit sharing backfire one time becuase the employeer had one goal in mind and the employees thought another.

    The final question is pre tax or not? You can set up some awesome pre tax plans but the employees can not get their hands on the money unless for qualified expenses (medical, buying a first home, college tuition). Or you could hand them a check and watch the evil tax ax fall.

    Great idea Jim money does motivate most people.

  4. Robert Paulson June 10, 2006 at 1:32 PM

    Yes, don’t treat this like a new SEO tool. Think it through very, very carefully, and how any system you have might be gamed. Not that you don’t have good people who would try to rip you off; I’m sure they’re great. But if you encourage the wrong thing, you’ll get the wrong results, pay out tons in profit sharing, have to cancel it, and have lots of PO’d people.

    A true story from a mining company 6-8 decades ago:

    The mining company wanted to increase production but wasn’t sure how to do it. Thinking the people in the mines would have the best ideas as to how to boost production, they gave them an incentive plan that was clean and simple: every car of ore produced over the current level earned a specific bonus.

    The mine company bosses were right. Production began to take off, resulting in more cars of ore, and with less labor per car. As an added benefit, the methods the miners developed also resulted in less dynamite used per car of ore. It was a winner all the way around.

    Then the bosses started to not like the sizes of the bonus checks they were writing, as some of the miners were making more than some of the bosses! So they changed the incentive package – since it was only taking X sticks of dynamite to produce a car of ore, the new incentive package was that for each X units of dynamite used, miners would receive Y in bonus.

    Guess what happened?

    Those mines were blown to shit in no time.

    Dynamite use went through the roof, ore production dropped like a stone, and the company had to keep writing big bonus checks.

    They ended up going bankrupt not much later.

    Seems obvious in hindsight, but lots of profit sharing plans look great at the time they’re developed, only to incent something other than what was intended, and the whole thing turns into a mess.

    Not saying you shouldn’t do it. You should. Just take it slow, seek the input of people who do that for a living.

  5. wheel June 10, 2006 at 8:57 PM

    Don’t give them hurldes, or a long term expectation and don’t make it difficult. Just tell everyone ‘thanks, we had a really good year’, and give everyone an extra paycheck. Done. No profit sharing, just a really nice surprise bonus.

    If you make it profit share, all of a sudden it’s part of the salary expectations.

  6. Kyle June 10, 2006 at 10:41 PM

    Well, I’m sure all of your employee’s read your blog. So it would not be possible to just surprise them with a check, as wheel suggested. But he does have a point about it just becoming part of their expected salary, rather than a nice bonus to show that you appreciate their dedication to their job… which it really is.

    I don’t have any specific recommendation, but I think it should be done in a way that your employee’s don’t eventually take it for granted, and so that they know that it is really something from you showing that you appreciate them and they don’t forget that.

  7. Overdose June 12, 2006 at 4:49 AM

    Some good advice I think

  8. IncrediBILL June 12, 2006 at 10:29 PM

    Matching 401K would be a nice benefit assuming you have a 401K plan in the first place. Set aside a portion of the profits for your matching program and disburse it proportionally based on salary.

    The upside to the employee is the money isn’t taxed so they get 100% of it earning for their retirement.

  9. Greg June 13, 2006 at 8:03 PM

    Give them a nice salary. Provide them with the opportunity to earn incentive based bonuses. Share the profits with the three original founders.

  10. Peter Davis June 17, 2006 at 5:14 PM

    Can be a can of worms….

    A. Do it in a way that it doesn’t give the employees a sense of entitlement. If they expect it in the future, and it doesn’t come, watch out.

    B. Be fair across the board, or the resentment that grows might outweigh the good feeling you spread from sharing.

    C. Sometimes creature comforts work better than money, extra time off, free lunches, that kind of thing.

    Finally, congrats on making money!

  11. Nick Wilsdon June 20, 2006 at 2:25 AM

    You have some great advice here, it looks like you have it covered. I have always opted to give once a year bonuses – usually around January. In general though I dumped all the various ‘bonus/performance-related-pay’ schemes we ever tried for plain old pay rises. Seems that sometimes the simplest method works the best.

    Peter is very right with c) though, taking everyone out to dinner and drinks when they have completed a large project does go down very well.

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