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Thread: industrial partner

  1. #21
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    spider, I didn't really see the commission as a bonus, but more of a performance based partial salary; the other portion would be the regular minimum- above minimum wage. So the more they close, the more commission + regular basic pay, the bigger their take home pay. The alternative would be higher basic pay, but much smaller or no commission. If they close x contracts, then they get a performance bonus.

    The monthly/quarterly performance bonus may or may not be implemented and the amounts "regulated" (based on sales trend); unlike the commission where the employee is entitled to it not as a a bonus but as a form of pay so regardless of th company's sales performance, it will be given. Sorry if I'm not using the right terms, but in the one and only company I worked at briefly decades ago, that's how they did it and I don't remember any complaints... Is this system weird?

  2. #22
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    You lost me a bit here, Van. Maybe that was because I wasn't clear. If payment is going to be calculated as a percentage of sales, then I would call that commission. But if a bonus is going to be calculated in the same way - as a percentage of sales - what's the difference? Seems you have some other rule in there to make a bonus different from a commission - what is that rule?

    Now I see that the bonus may or may not be implemented. Does that mean this is an arbitrary payment - and you'll pay it sometimes and not others, when you feel like it, perhaps? Does the amounts being "regulated" mean that there will be no basis for calculatimg the bonus and that the amount of the bonus will be arbitrarily decided?

    When you say that employees will be entitled to the commission "not as a bonus," are you saying they will not be entitled to the bonus and that it will be arbitrarily given?

  3. #23
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    We're on the same page-- i think I'm the confusing one. Sorry.

    Hypothetical: Minimum wage $1,000 a month
    Employee A basic salary: $1,200 (just a little above minimum)

    Method 1:
    For every sale that's worth $300 each, he gets 10% commission= $30@.
    If he sells 10 units = commission is $300
    Take home pay that month: 1200 + 300 = $1,500

    If the $600 performance bonus is implemented that month, meaning if he is able to sell quota of 20 units, his take home pay will be: 1,200 + 600 = 1,800
    plus the bonus of $600, total would be = $2,400

    If on the second month he sells the same, but the bonus is bigger $1000, then he'll be getting 1,800 plus 1,000 bonus, total would be = $2,800

    Method 2:
    I guess we can do what you're saying to make it less complicated... on the second month example= 1,200 + 600 (10% of the 20 units) , total would be = $1,800

    The advantage i see in method 1 is that it's specific target driven, the objective is clearer. They don't only have to perform well, there's a specific number they need to be able to hit to get the bonus.

    Second advantage is that we can adjust the bonus amount accordingly depending on sales trend of the entire team. Increase, maybe increase further, or decrease. As much as possible, we'll aim for a bonus every month. Increase in the bonus performance amount will reward the employee higher, than if we just base it on a fixed commission % as in 2nd month comparison between methods 1&2 above.

    what do you think?

  4. #24
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    When trying to assess anything like this, I try to put myself on the receiving end - How would I react if I was offered this as an employee?

    Method 1 — I would know what my salary is. I would know what the commission rate is. I would know how many I sell so I could easily calculate what I will earn in commission. What I don't know and have no way of calculating is the bonus. What I cannot ascertain cannot motivate me. You say, "If... a performance bonus is implemented that month." That means to me that it may not be implemented. You say, in the second month, the bonus may be bigger. That says to me it may be smaller. Or non-existent! I would react by saying to myself, I may or may not get a bonus, it may or may not be worth working hard for. Forget it! If I get something, Great! If not, well, I won't bank on it - I'll focus on the commission and anything I get over that will just be gravy. IOW, the performance bonus will not be an incentive.

    Method 2 is just straight pay – salary plus commission. No incentive.

    Have you dropped the profit-sharing idea?

  5. #25

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    Van, I'm new on this board as well, and your discussion pulled me in. I have to echo Sequoia's comments here, in that you're contemplating a fairly sophisticated agreement between you and your industrial partner (or whatever we end up calling him). This is likely not a job for legalzoom or some other online incorporator. They have their uses, but for the business association you'd likely end up forming, you're going to need to consult an attorney to draft a quick agreement for you.

    I've worked with people who have successfully accomplished this in the past. It's likely no more than a few hundred bucks. Don't let them fool you - it can be done cost-efficiently. PM me if you have questions about the legal issues (there are several that pop into my head just from reading this).

    I will also add that the beauty of the LLC form is its flexibility: you can give your industrial partner an ownership stake in the corporation so that he has some skin in the game, but still tailor it to allow him just as much freedom and demand just as many obligations as you like. Further, you can set forth the way you'd like him to be paid with great specificity. Practically speaking, this is an inconvenient process if you try to use the traditional corporate form. I could go on about how to use an LLC to accomplish this. Shoot me an email if you have specific questions. I'm happy to help.

    From what I've read so far, making him a member with carefully tailored limitations on his management role is the way to go.
    Marco Santori is a lawyer in New York City who works with small and medium-sized businesses. However, he is not your lawyer and this post is not legal advice. If you need legal advice, PM him, or check him out at http://www.marcosantori.com

  6. #26
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    spider, no, we're still incorporating the end of the year scheme, will calculate the best % for all when the real figures for base pay are established... I was just explaining how the original plan we had would've worked we would like any scheme to be as motivating as possible-- in your evaluation of method1-- shouldn't the basis for pay calculation for any potential employee be just the basic pay and the commission? the bonus after all is that, a bonus? meaning regardless how it is calculated (either by the varying monthly bonus or by year-end employee profit%) no figure is definite and it may range from small to significant, depending on a lot of factors which aren't all in his control? (sales climate, unseen company expenses, , etc) meaning even if we do the employee profit%, he should primarily be satisfied with his fixed pay to accept the job because the bonuses may or may not meet his expectations come end of the year. That said, your recommendation for the end of the year % has an undeniable psychological value so we're definitely incorporating it.

    hi, marco! thanks for the offer! we're still going for the inc. route, whether the IT guy is on-board as a partner or not. thanks for the offer for legal insight, will take you up on that when the need arises.

  7. #27
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    Okay. From what I understand you to be saying, all employees will get a salary and all will be involved in the profit-sharing, and the sales people will get commision, too. So, what is a bonus expected to do? If I don't know what the bonus is going to be, it won't motivate me to work harder.

    You could make a game of it. Devise a bonus scheme that is clear and determined but different from month to month---

    Month 1. $250 bonus for each sales rep who increases their month's personal sales volume 10 percent over previous month.
    Month 2. $500 bonus for winning 5 new clients.
    Month 3. $300 bonus for 7 sales to previous buyers.
    Month 4. $100 bonus for every order in excess of $3,000
    Month 5. $1,000 bonus for the highest volume. $200 for the runner-up.

    You can change the bonus frequently, but it must be declared at the beginning of each month so that employees know exactly what they are working towards.

    You cannot hit a target you cannot see.
    Last edited by Spider; 07-19-2010 at 10:58 PM.

  8. #28
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    Yes, quota and corresponding bonus will definitely be announced a week prior to concerned month. and yup, maybe smaller but regularly scheduled bonuses would be better than big amount but intermittent...

    thanks A LOT for the help, guys!

  9. #29
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    BTW - Don't forget the incentive value of non-financial "bonuses" too. Not everyone is driven by money. Prestige and perks are better motivators for some people -

    -- Special "Salesman-of-the-month" parking
    -- Desk-top Trophies
    -- Executive privileges
    -- Theater or stadium tickets
    -- Round of golf at topnotch country club.


    I enjoyed this conversation - I hope it was helpful. But we did drift away from your original question. How did you settle what to do for the 20 percent non-contributing "partner?"
    Last edited by Spider; 07-23-2010 at 09:31 AM.

  10. #30
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    Helpful, indeed! Thanks for the additional incentive tips, spider! The 20% partner will be treated as an investor, which excludes him from ownership. So it'll be like, instead of investing financially, it is in kind over the year, at the end of which he gets 20% of the profit. He won't be required to come in on a schedule, just output progress. Forgot to ask-- we were thinking that we'll be releasing to him 20% of the total profit (not just 20% of the profit marked to be released that year), that's would be fair and correct, right?

    But, to keep you guys posted on Person C-- well, well.... glad to find out as early as now that we won't be working with him. After 3 months of good communication, last month we had major ethics problems with him. It's a major step back, but at least we found out before this got underway. So we're now about to talk to Person D and E. I don' get some people. They complain that they need additional income, complain about money, etc etc, but when opportunities present themselves, they f it up. Oh well....

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