This is not policy yet - we are sharing it to solicit responses from the community and it's a work-in-progress
Our quarterly bonus program will allocate between 10% 20% of profits* to full-time employees: 25% is split equally and 75% is split based on seniority, then all weighed by the cost of living in each location.
*: this is Earnings - Regular Operating Expenses. Regular expenses do not include dividends and "one-off expenses" such as the annual retreat.
Let's break it down:
- Our quarterly: we pay out bonuses 4 times a year, at the end of January (for Q4 of the previous year), April (for Q1), July (for Q2) and October (for Q3).
- bonus program: it's a bonus program, meaning that it can change or stop in the future depending on how we do. Basically, it's gravy.
- allocates 10% 20%: fifteen percent of profits is generous while still responsible for the financial well-being of the company.
- of profits: not earnings, because it encourages all of us to limit our expenses.
- *: excluding owner dividends from the expense calculation is good because then the owner cannot take a profit without worrying about their impact on bonuses.
- to full-time employees: bonuses are for full-time employees only. However, part-time employees later hired as full-timers will receive seniority points for the days worked (see below).
- 25% is split equally: this is good because it promotes team spirit: while the majority of the bonus is weighted towards time spent in the company, this portion of the bonus is equally shared by all members of the family. This gives a nice incentive for everyone to be fully part of the team, even when they are just starting with Intempt. It will also be good down the line for a new employee who will take much longer to to even out with the seniority of current staff.
- and 75% is split based on seniority: this is good because it smooths out the impact of new employees, and evens out over time. Also to note how this is NOT based on salary / skills. Also, nothing forbids us to also give out other merit-based bonuses as well.
- then all weighed by the cost of living in each location: this is important because it's fair. The fact that we're using cost of living instead of average wages is even more fair.
OK so that's the program and the philosophy behind it. Here's some more details:
How we calculate Profits*
We take the gross revenue and remove all the "normal" expenses: operating costs, taxes, previous bonuses given out as part of this bonus program...basically everything EXCEPT:
- owner/investor dividends - so that if Sid or an investor takes some money out it won't impact the amount of the bonuses
- extra one-off expenses - From even smaller costs like Christmas gifts. This is again so that we can have these "extravagant" expenses without impacting the amount of the bonuses.
How we calculate seniority
This is the number of days worked at Intempt since starting full-time on the payroll, with possible addition of days from previous contract or part-time work. Over time the difference in seniority goes down as we all become senior. This means that in the long run, bonuses will even out for everyone. It also means that the addition of a new employee does not dramatically reduce everyone else's bonus right away.
How we calculate the cost of living
We get the relative cost of living in USA, EU from the OECD Consumer Prices tables. We get the relative Consumer Price Index for the US from the Bureau of Labor Statistics' Consumer Price Index tables.We take the latest data available from each and combine them, coming out with a score for each of the following regions: USA West, Lithuania and USA TX. We use this regional score to weigh the seniority amounts.