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Ask HN: Experience with profit sharing?

7 points by ian0 ↗ HN
We have considering profit sharing VS ESOP for employees as:

- Profit sharing is tangible - We monetise from the start and can roll down KPIs - Many of our employees would struggle to understand an ESOP scheme - Those that understand equity undervalue it - Those that understand options discount them completely :P

Wondering have anyone here has implemented or taken part in one:

- Did it have any impact with regards to fund raising? - Did it have any impact on exiting? - Did it make it harder to attract new employees at any stage? - Any best practices we should take into account?

We are weighting it on join-date / risk taken not seniority. We still maintain a small ESOP scheme for advisors.

4 comments

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Top19
Look into Joseph Stiglitz and the Roosevelt Institute. Stiglitz has heavily influenced, no joke, Steve Bannon, Bernie Sanders, and I believe was chief economic advisor for Hillary Clinton in 2008 campaign.

His “rewriting the rules” book calls for profit sharing as one of its main tenets. It’s now a strong core of modern liberal economic theory (along with employee representation on the board).

Wish you the best of luck and sorry if you are already aware.

ian0
I wasn't already aware - ill check it out - Thank you!
muzani
It also depends a lot of the kind of company it is. I had a few profit sharing offers from a social media company. Mostly it was to get their e-commerce component off the ground.

It seemed like a poor deal to sign so early, as opposed to a company that is already making profits. If something like a CRM or other B2B company offered profit sharing it would be a much better deal.

An ESOP deal for things that monetize poorly is better, a profit sharing deal with something rolling in cash flow is better.

Often employees are not risk takers. If they wanted risk, many would be founders. Just paint it really clearly how much they would get out of it and in some cases expect them to be skeptical, not of your word, but of your optimism.

danieltillett
The problem with profit sharing is most employees heavily discount it to the point of it not being an effective motivation tool. Personally I would spend the money ensuring everyone is paid well and tightening up the unity of the team.

On thing I have wanted to try is to give the employees a certain amount of “free” money tied to profits and let them spend it as a team on anything that will make the team better/happier.