My company has been in business for five years. We're profitable, no debt. The old "socialist" compensation system is no longer working now that there's revenue and inequitable partnership man hours. I am restructuring the roles and responsibilities and now tying actions to incentives, rewards, and individualized compensation structures. I am finally giving myself a commission for being in business development/sales. That is a HUGE leap for us. Any advice you can give to break it to one partner who is operations (and a relative) that I should get paid based on my contribution? I work more hours and my contribution is essentially more valuable. As an early stage, EVERYTHING is front loaded between account management, new product development, and getting new business. This was never relevant without cashflow.
If you were going to sell the business, the first thing a knowledgeable buyer (or investor) would do is normalize the wage expense vs. fair market.
If you and the other founders are not paying yourselves what you would earn working for a stranger, then your financial statements are meaningless because you're literally subsidizing the operations of the company with free labour.
You've indentured yourself to this venture.
If revenues are growing and you can afford to pay yourselves what a stranger would pay you for the work that you do and there is a profit left over after that, congratulations, you've got a real business.
Arrange a call if you'd like to discuss your case in particular. I've gone through this with many clients and helped them through the partnership issues that can normally arise from addressing it.
David C Barnett
This question makes me smile. All salespersons/business developers think their contribution is more important than everyone else's. I've heard this argument since the first day I started work. Unfortunately, it isn't true because the rest of the business has to make that sale happen to the customer's satisfaction, and invoice and collect the money. Everyone in the business should be there with a role to play or they shouldn't be there at all.
To add to this argument, I've already had to deal with sales people making poor sales. The routine is bad margins. The exception was a sales competition in which the company had to pay the salesman a bonus in front of all of his colleagues during a gala ceremony when I knew the client had run off with goods! We never recovered the value of that sale or the goods and had to pay out the bonus. It was a bad deal all round.
I'd suggest you pay yourselves market rate compensations and co-owners of the company split all or a percentage of the profits. If you really want to get into incentive structures you have to be fair and provide your relative - everyone on the company - with the same opportunity.
I'm more than happy to speak with you further about this issue if you like.