Stock options are the most common method, but it’s strange to compensate a team member with stock and immediately follow it up by saying, “Oh yeah, but we’re not going to sell.”
Options without an exit event just don’t have the same value as when you can expect to flip this startup and be on to the next one within five years. (View Highlight)
Now we divide our profit into a few buckets: taxes, savings, and profit for distribution.
Profit for distribution is then divided between three groups:
52% — Team profit sharing
8% — Leadership bonuses
40% — Owner distributions (View Highlight)
Salary is not a factor
One key difference between our system and most other profit sharing systems I’ve seen is that we don’t account for salary. Our theory is that salary is a reflection of your market value and not exactly your value to the company. A higher market value such as an engineer versus a customer support team member is already reflected in salary, so we don’t need to account for it again in profit sharing. (View Highlight)
The formula is then the total pool (say $100,000) divided into two buckets: time with the company ($25,000) and performance ($75,000). Then all the total days with the company and performance scores are divided from their respective buckets to get a value for each day and performance point. (View Highlight)
