Profit sharing / bonus compensation rather than a high base salary?

[v0rtex]

Hi there,

I am a senior employee at a small, new (3 year old) digital marketing agency that's been growing very rapidly. Joined about a year ago and they've doubled in size since then. I expect the company to continue to grow at a rapid pace (we just leased a much larger office to cope with anticipated growth). Revenue is in ~low $m, with ~15 employees.

When I initially joined the company, the partners floated the option of my compensation being tied to profitability of the department I was to build and run. I turned them down as I did not know enough about the company and considered it too risky at that time, opting for a higher base salary instead. I was able to negotiate an above-market salary as I had worked with the partners in the past and they had a pressing need to hire someone they trusted into my role.

Since then everything has gone well, the company is managed well and I believe it has a good future. Haven't heard any numbers yet, but will be given access to the financials soon and made an offer to reduce my base salary in exchange for compensation tied to profitability.

Has anyone else worked on a performance basis before? Recommend it? Anything to watch for when negotiating, or negotiate for? What sort of percentage of salary should be based on performance?

 

[VinnyMac]

I would have waited until I saw the financial statements before I offered to switch my compensation plan.

There are pluses and minuses to the performance-based pay structure. From the companies perspective, it controls the amount of guaranteed money that they have to pay. If you perform, then you won't get paid. A related advantage (in theory) is that the people who aren't performing and aren't being paid will be unhappy and quit; the better employees will stick around. It's a self-filtering process. Also, that pay structure motivates employees to do their jobs well because their ability to get what they want is directly tied to it.

As an employee, if you like the idea of being paid based on your performance level, it could be a good idea. If you're really prepared, you'll do a little investigating and prepare a basic forecast of sales for the next year. That way, you'll know what percentages to negotiate in order to insure that, in the worst case scenario, you still make about the same amount of money. In anything other than the worst case, you'll make a lot more money.

You'll want to find out how frequently the pay-outs for bonuses come. I'd make sure that the salary component is AT LEAST enough to pay any expenses and debts that you'll have to cover.

 

[globetrotter]

1. make sure that your base covers your nut. that is key.
2. make sure that the language of your contract protects you, that you can't be fucked out of your money. honestly, this is so common it isn't even funny.
3. aside from that, its great - if you can live off of your base, and you get compensated on how well you achieve the company's goals, then everyone wins.


I've had pretty much every job I've had in 20 years with a significant part of my income tied to performance. I've been fucked over more times than I could tell you, but I've also made some pretty good money, including on some of the years I've been fucked over. not crazy good money, but not bad money.

 

[VinnyMac]

1. make sure that your base covers your nut. that is key.
2. make sure that the language of your contract protects you, that you can't be fucked out of your money. honestly, this is so common it isn't even funny.
3. aside from that, its great - if you can live off of your base, and you get compensated on how well you achieve the company's goals, then everyone wins.


I've had pretty much every job I've had in 20 years with a significant part of my income tied to performance. I've been fucked over more times than I could tell you, but I've also made some pretty good money, including on some of the years I've been fucked over. not crazy good money, but not bad money.

Screwing people out of pay is a big reason for employee theft. One way or another, people will get what they have coming to them.

 

[Kai]



2. make sure that the language of your contract protects you, that you can't be fucked out of your money. honestly, this is so common it isn't even funny.

This.

Another possibility is to get equity.