This post is part of a series about our VERY FEW company policies. Read this intro post for some context.
When I was at Adobe we had complicated employee stock options purchase program, as well as even more complex (to me at least) bonuses that were tied to "us making our numbers". They all seemed a bit mysterious to me, but I remember liking getting those checks once in a while! :)
When I started Balsamiq, I knew that I would want to put some sort of profit sharing program in place.
Our books are 100% available to all employees, everyone knows how well we're doing and what we're spending money on, including how much everyone else makes (having a fair and clear salary policy helps here).
In other words, we're all in this together.
When Marco (employee #1) started, I came up with a simple rule: he would get 1% of revenue as a bonus every quarter. This was a NET value, POST-tax, which means that it was really about 2% for the company. One percent might not seem much, but it quickly became more than his base salary.
When Valerie started, she got the same deal. As we grew more and more, it became obvious that this was not a sustainable expense.
Being tied to revenue instead of profits didn't encourage people to watch expenses. Also, differences in purchase parity between Italy and the US meant that what was a large bonus for Marco in Italy was not proportionally large to Valerie, in the US.
When we got to six employees, Natalie, Valerie and I sat down to come up with something that would still be generous, would still reflect our values, but would be more fair and most importantly could scale as the company grew.
Note that I'm always operating under the assumption that customers could go to ZERO tomorrow. If that happens, I want to have as much money in the bank as possible to have one or two years of runway, so that we can come up with something new as a team. That's why having a great team is the single most important thing: if that day comes, I wouldn't want to be surrounded by any other group of people. :)
We are very happy with the little formula we came up with, so we'd like to share it with you in case it's useful to other micro-multinationals like ours.
As always, we'd love your feedback on it! :)
Our quarterly bonus program allocates 10% of profits* to full-time employees: 25% is split
equally and 75% is split based on seniority, then all weighed by the cost of living in each location.
*: this is Earnings - Regular Operating Expenses. Regular expenses do not include dividends and "crazy one-off expenses" such as staff gifts or the annual retreat.
Let's break it down:
We take the gross revenue and remove all the "normal" expenses: operating costs, taxes, previous bonuses given out as part of this bonus program...basically everything EXCEPT:
This is the number of days worked at Balsamiq since starting full-time on the payroll, with possible addition of days from previous contract or part-time work.
Over time the difference in seniority goes down as we all become senior. This means that in the long run, bonuses will even out for everyone. It also means that the addition of a new employee does not dramatically reduce everyone else's bonus right away.
This is a fun one.
We get the relative cost of living in USA, France and Italy from the OECD Consumer Prices tables.
We get the relative Consumer Price Index for the US from the Bureau of Labor Statistics' Consumer Price Index tables.
We take the latest data available from each and combine them, coming out with a score for each of the following regions: Italy, USA West, France and USA North East.
We use this regional score to weigh the seniority amounts.
That's it! We've been using this formula for over a year now, and everyone seems happy with it. It certainly helps that our profits have been growing this whole time as well... :)
What do you think? Do you have a profit sharing program at your company? How is it calculated? How would you improve ours?
Hope this helps,
Peldi for the Balsamiq team