David Branch of Branch Contractors sent in a few great questions about profit-sharing. In Q & A On Profit-sharing I answered David’s questions on how to explain profit-sharing to a prospective team member, as well as how to pay it out. Today we continue with the rest of David’s questions:
David – In the probationary period of a new hire, do I offer a higher salary at the beginning, with the understanding that after the probation period, the salary will be reduced due to them being enrolled in the profit-sharing program?
CLo – Absolutely not. The salary range for the position needs to match what the position is worth. The amount in that range that you pay to the new hire should be based on their experience.
Profit-sharing is given freely from the owner/leaders on top of salary as a way of rewarding team members for going the extra mile, as well as a way of incentivizing them to continue to do so. Otherwise, if you want to keep the salary low, but have them count extra moneys as part of their pay, you would need to put them on some sort of commission plan.
David – I hired a guy about three months ago understanding that he would only be temporary, (moving family to Texas) but was hoping he would possibly stay. I put him on the profit-sharing incentive and he has done well. As it turns out, he is moving July 15. My question, since he is moving, should he receive a bonus on the 15th? Kinda simple but I’m still trying to get this profit-sharing figured out.
CLo – Another great question. I have no problem with you paying out profit-sharing for the time that he works with you. If the 15th check is for the previous month, go ahead and pay it out. He contributed to the profit made during that time. However, if the he was leaving because you let him go, then I feel you have no obligation to pay him from the profits. Salary? Of course, because he earned it.
Questions: Do you have any questions related to profit-sharing? If not, are there any other subjects you would like answers to? If so, click comments and let me know.
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- Q & A On Profit-sharing (ChrisLoCurto.com)
- How To Do Profit Sharing (ChrisLoCurto.com)
- How To Do Profit Sharing Pt. 2 (ChrisLoCurto.com)
3 thoughts on “Q & A On Profit-sharing Pt. 2”
Hi Chris: How do you benchmark to assure compensation is competitive to match passion, talent and experience?
Is it wise to pay lower than norms with the carrot of profit sharing making up the difference?
Every company will face growth beyond expectations and setbacks beyond imagination. In other words, profits achieved were beyond the effort input of individuals or profits were disappointing despite hard work, imagination and thinking outside the box. How do you factor great payouts by doing just above normal and little or nothing despite great effort and going beyond everyday?
I don’t like to use the term profit-sharing in this situation. I don’t have a problem with this structure, I prefer you call it something like, bonus, spiff, incentive, commission. But it’s ok if you don’t, as long as they COMPLETELY understand how they get paid, and what winning looks like. Make sense?
As far as benchmark, we like to find a range that the position pays in the market place. Then we base pay in that range according to experience. Passion should just be a requirement. 🙂
With the payouts, you decide what percentage you want to pay out. It’s your profits, you’re deciding to share them, decide how much you want to share. Either way, the point of sharing is that your team has done a great job and you want to reward them. But understand, no one person makes a company happen. It is a team effort. If you feel the company would have won “anyway”, you might get yourself in a dangerous place.
Whatt is a common % of profits that would be put in the profit sharing pool. I know this can vary, but what is common?