Jonathan:
Going to read a question to you. This question is really old, like as in years ago, but I have probably a thousand questions saved up that, just can’t get to them all. I’ve responded to ton in writing and in video. I just can’t respond in writing anymore these days. There’s just too many things going on. I’m going to read you the question. It’s long. Then, I’m going to answer it. It’s a good question. The premise is: “Should I share profits with a stud employee?” Let me read this.
“First, I want to thank you for the amazing service that you provided. I was part of your round table this last January.” That’s how I know this is old. “I have been working tirelessly to implement your strategies and ideas.” Now, we have something called “Academy”, it’s not “Round table”.
“So far, the results have been nothing short of amazing, I hope” … Now that I’m reading this, it sounds like a big giant plug for me. “I hope to attend your events in the future.” Okay, I’m going to skip down.
“I have a guy, or a stud”, hopefully I didn’t miss anything here, “as you would put it, that want’s to join the team. This is a guy that I think would make a great president of the company some day. For now, I would like to make him my operations manager and see where that takes us.” I think that’s very smart. Start there. “He wants to share in the profits.” If he’s a stud, good for him. “I don’t feel comfortable making him a partner, not this early anyway.” I agree. “But, I do like the idea of giving him a share of the profits. Do you think this is a good idea? Is there a better way to handle this? My main concern is that I will have to include him in every purchase and budget decision moving forward. Am I overthinking this.”
There’s a number of ways to structure this. I don’t think I’ll give all the details here, but I am not concerned with the idea of giving this individual some share of the profits. Now, I would rather do that though if they lead the company, if they run the company. To me, that is the person you want to compensate. You want to give them some amount of salary and then you want to give them a lot of upside by making your company more profitable, by building the company, growing the company. That’s where they really grow their long-term income versus just a bigger and bigger salary.
An operations manager in my mind would only get a cut of profits around what they can affect. A president of the company can affect everything in the company. They’re building the team, they’re the leadership. They affect everything. The decisions they make, especially around who they hire and how they manage that individual and how they guide the company moving forward into what product lines, things of that, that is, and how they manage cash flow and all that, it’s all back on them. Tie them in directly to the profits of the company. I love that. They don’t necessarily have to be an owner to make that happen.
Now, when it comes to an operations manager, if you’re going to compensate this individual outside of salary, it needs to, in my opinion, be tied to what they can affect. I don’t like compensation where they do not have an effect on it because then it doesn’t in any way motivate them to take action.
What I mean by that is, let’s say that I am an individual that’s mowing the lawn, as an example, or I’m a spray tech. I’m going to get, this is just an example, 1% of the company profits. That would be a very bad idea to do what I just described, but let’s say that’s the case. It doesn’t necessarily make me, in my opinion, go work harder so I can spray two extra yards a day because at the top of the company, the guy running it could be screwing it up by hiring people I think are bad employees and he could, the spray tech would perceive, “I have no effect on marketing. I don’t think their marketing even makes sense. I can’t have any control over any of the things that really move the company forward. I don’t have any control over the budget.” Therefore, they don’t really feel like they have that much impact on making the company more profitable other than in the particular accounts, servicing them faster, taking good care of those clients.
In a case like that, to give an individual profit sharing doesn’t make as much sense to me as tying their ability to earn more profit to the route that they run.
If you think about an operations manager, what does an operations manager have control over? To some degree, they have control over the profitability of work. That’s if they have a say in selling the work and pricing the work. That’s if you’re even marketing to help them build density. You can see where it even gets complicated from there, but I would think around, I’d be thinking about bonuses and profit around efficiencies in, let’s call it the morning, the evening routine, the running of the facility. Let’s talk about profitability sharing around the job costing of the work. Are we being more efficient when we’re on the job site. Are we driving down drive times. Think about all of that stuff that an operations manager has an effect on. Maybe something around product usage, meaning waste, efficiency, around the use of products and materials. That’s the stuff I’d be focused on.
I wouldn’t necessarily, you could probably make it work, but I probably wouldn’t tie this individual into the overall profitability of the company until they move up another notch. I would compensate them in the way that I just described.
Now, this individual turns out to be the stud that you believe they are and they eventually become the president of the company. That’s a different story and that is when you might consider tying them into the overall profits of the company. I would recommend there that you think about tying their profit to the cash extracted from the company, meaning taking out of the company as true profit, not just profit loss statement profit.
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