Q & A On Profit-sharing

David Branch of Branch Contractors, an EntreLeadership alum, asked a great question about profit-sharing. I asked him if I could answer it through the blog, and he was happy to share it with you.

David – Hey Chris! I hope all is well.  I have a team math question. I watched one of your videos from Entre and in it you said something to the effect that the new hire should be passionate and excited about the position, and money should not necessarily be the focus.  Well, I try to get that across to the new prospects in sort of round-about way, mostly because I have a hard time explaining a system to them (profit-sharing).  

As you know, I cut salaries and my new policy is to cap them out at $40k.  So, when I am selling a position to a prospective hire (one who I really think I would like) I tell him that he should expect a $35k salary plus profit-sharing.  When they ask the percentage or how it is calculated I tell them they do not get a fixed percentage, but rather I split it up as I see fit based upon each individual’s performance.

This seems to stump them a bit. They are not sure about their target or what it looks like to win with us. The guys who are part of it understand, but the new guy has no idea. And then they always have to sell it to their spouses as well.  In this particular hire, the guy would be moving from Illinois, so I completely understand his concern. Any tips on how to make this easier for them to catch on to?

Thanks again for all your help.  I am trying to get a group together to bring to the July EntreLeadership

CLo – Thanks, David. I believe there are a few pieces I can answer. On the idea of passion, my belief is that you need to hire someone who is passionate about the position, not someone who is only concerned about the pay. That person is only looking for a j.o.b. The person whose eyes light up when you explain what they will be doing will always be focused on the position. If you pay well and they can afford the job, they will make the right decision.

As for the profit-sharing, they have to have a decent idea of what to expect. We always let our prospective team members know that profit-sharing is not guaranteed, but our track record allows us to give them an idea of what it will be. There can be no confusion as to how they are compensated. Otherwise, they can become paralyzed in their work.

As for the percentage they are paid, no team member should ever know what that is. However, I believe you need a solid, easy-to explain system in place. In How To Do Profit-sharing and How To Do Profit-sharing Pt. 2, I discuss how to implement a system that pays according to what you value. We tell our prospects that we pay according to set values and that they can have an effect on each value. Therefore, they are self-employed. The more effort they put in, the more profit-sharing they get.

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