Steal this profit sharing plan

MeetEdgar’s a bootstrapped business. If we don’t have profit, we don’t have a business.

For your employees though, earning more and more profit for your company isn't that intrinsically motivating, after a certain point. Once everybody's being reliably paid on time, you're able to keep salary increases coming, and you can afford to pursue exciting new projects your team's eager to dive into, is it really benefitting your team to sweat for a profit margin increase from say 16% to 17%?

For even the hardest working and most internally motivated employee, it's so abstract and they're so far removed from any kind of tangible benefit of that change that that's going to get stale, real quick.

I wanted to find a non-bullshitty way to tie business wins into something that more explicitly benefits and acknowledges the people creating that value. (That's what Value For Value at MeetEdgar's all about!)

About six months ago, I started hunting for companies with simple, employee-focused profit sharing, hoping for some inspiration. Honestly folks, I got nowhere.

So... instead, I made my own. If you're in a similar boat, I welcome you to steal this profit sharing plan!

How I announced Profit Sharing to our team. So easy it fits in a Slack post.
How I announced Profit Sharing to our team. So easy it fits in a Slack post.

Here's how it works

When the dust settles at the end of the year, we’ll determine:

  1. Did we bring in more revenue this year than last year?
  2. Is our year-end profit margin greater than 15%?

If we meet both criteria, we’ll split up the portion of our profit margin above 15% up to 18% and share it with the team as a cash bonus, distributed equally among all employees.

That’s it.

It’s stupid simple. That’s what I like about it. But it’s also heavily catered specifically to this team in this moment. Here are some details about the moving parts so you can adapt this to your situation:

We have to bring in more revenue than the previous year

Profit isn't the whole picture. We're a growing business and we aren't anywhere near done yet! This criterion rewards the team for choosing healthy, sustainable revenue growth instead of focusing solely on producing profit by figuring out how to spend less money all year.

The company keeps the first 15% of profit margin

The first 15% of our year-end profit margin goes into the business’ bank account as operating cash for the company. In short, it keeps the lights on, our paychecks paid, and our customers thriving for the foreseeable future.

There’s an 18% ceiling

After the first 15% of profit margin, any additional profit up to 18% gets added up into a big ol’ profit share pool to be split among employees.

The limit at 18% is really specific to how MeetEdgar’s doing today and is likely the first thing to evolve in the future. Right now, we’re eager to get onto a steady, reliable growth trajectory — so deploying additional cash to fuel new growth projects and experiments is a huge help!

This limit makes sure we never hesitate to grab opportunities throughout the year to reinvest back into the business' growth – which of course leads to more potential profit share payments in the future!

We split the profit share pool evenly

I researched so many bonus programs and through it all, I couldn't find a single convincing argument to choose NOT to do this. Many companies include performance assessments and salary as an element of their bonus programs.

One problem there: the profit we create together happens because of every single person’s contributions — no matter their salary and no matter what type of performance feedback they've been working to address throughout the year.

🗯️ So your salary's higher than everyone else's on the team? The benefit of that that is that your salary is higher than everyone else's on the team.

🗯️ You've worked here more years than everyone else? Nice! I hope that means you'll be around for more of these payouts over time than people who join later.

🗯️ Somebody you manage isn't performing well? If they're still here and improving, they're doing well enough to be acknowledged as a contributing member of the team.

Our results are the cumulative total of all of our efforts (for better and for worse). When the company does well as a result of our work, we all win as one team.

This is only the first iteration of Profit Sharing at MeetEdgar, and it’s long overdue. I know it’s unlikely that we got it perfect the first time around. I’m sure a few successful pay-outs (or near misses!) will influence this policy as we go, as will the ideas I hear from my team and others.

I’d love for you to share what you think! Have you given something similar a try at your company or been a part of a program you loved? Tell me about it on twitter.