Advice needed on 'profit share investment' offered by employer

Discussion in 'Growing and Managing a Business' started by liftandshift, Jun 12, 2013.

  1. liftandshift

    liftandshift
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    Hi guys!

    I've just joined today to ask for some advice on something that has been offered to me recently by my employer.

    I work in the far east for a small company that employs about 8 staff. We currently get paid a percentage of the hourly fee that the company charges. Let's say we charge 60 dollars and hour, we get 35 dollars of this.

    We recently moved from a small premises to a large one and business has boomed. We're all doing a lot of hours and earning decent money, but are paid like freelance. If we don't work we don't get paid.

    I've enquired with my boss about investing, becoming a part of it and helping it grow together. He has said he's very wary about losing any control of the company. This has got me thinking about going freelance or setting up my own business of the same nature. I'm an ambitious guy and don't want to be working for my boss for the next 10 years. In this line of work it would be very easy to go freelance and take the full $60 hourly rate but stream of clients would be less secure and I love working at this place.

    As we're expanding he can see the value of holding onto us. He has recognized that the business is the staff, us, not the materials or location of the business. Our experience is hugely important, valuable and integral to the business. Therefore he has offered this 'incentive' to us and I am very unsure about it. I would love your opinion and advice:

    For an initial investment of $7000 (admittedly a fairly small amount) he will give us 2% of the company profits. The contract will last 3 years and if we leave we will get the 2% for 3 years regardless. If we stay beyond 3 years we will receive the 2% while we remain employed by the company. So if we stay 8 years we will continue to get the 2% with no extra investment. This will be after all outgoings, our salary, his salary, rent etc. He says he will be totally transparent with incomings, outgoings, all accounts etc.

    At the current profit rate I will get back $7500 over the 3 years. We are expanding our current location and this could mean increased profits, but possibly less.

    He has sent us a contract, with two points of interest:

    1. The employer agrees to pay the employee an incentive salary equal to 2% (two percent) of the net profits of the company for the fiscal year, subject to a maximum of [specify the maximum amount of incentive salary payable in figures and words if you want to put a maximum cap on the payment].

    8. The employer has the right to discontinue this agreement, or alter the terms and conditions at any time at its discretion, by providing the employee with a notice of 30 days of the intention to do so.

    My thoughts and concerns:

    - I don't really want to pay for profit share. I will pay for a share of the company that can be resold and make me feel like some of the company is mine, which it will be. I feel profit share should just be offered, or a bonus if the company hits a certain target.
    - It seems to be very good for my boss. He raises $35,000 (this has been offered to 5 people) without really any risk on his part or giving up any of the business. He's sold this to us as a 'gift'.
    - the business, although doing well now, is vulnerable to staff leaving or something happening to the market in this reasonable volatile country.
    - it ties me in long term to make good gains without really offering me enough to satisfy my ambitions.
    - it could create a strange work dynamic. Will we be expected to do more work unpaid as "the company is partly yours now, guys!"
    - what happens if the company is sold? He said the money would be returned to us if it's in the 3 year contract period

    I would love your input on:

    - Is it common place to ask employees to pay for profit share? Is this really an incentive or a 'gift' as he puts it?
    - I kind of trust him, he's a good friend of mine, but I can't absolutely say I trust him implicitly. He's quite shrewd and often sells things to us as beneficial, when really they only benefit him. My concern is that later the rules will change. Term 8 obviously allows this.
    - any other general thoughts. Is it a good offer I should consider or is he taking the piss?

    Thanks so much in advance. If anything is unclear please feel free to ask.
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum liftandshift, thanks for joining and asking your business questions. Personally I haven't heard of employees having to pay to be in a profit share before. I'd also agree with you, that if you pay for a share for the business, you are right to expect to own that share.

    You say that "At the current profit rate I will get back $7500 over the 3 years", that seems like a very low return for someone investing $7,000. You could probably find somewhere to save that money and get a guaranteed return higher than that, over the three years.

    It would also greatly concern me that "The employer has the right to discontinue this agreement". If the employer were to do this say six months into the agreement, what would happen to your initial $7,000 investment?
     
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  3. jenna

    jenna
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    Thats really nice offer.
     
  4. liftandshift

    liftandshift
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    Thanks for your input Jenna.

    Cheers Fergal - pretty much reiterating my thoughts. Interesting that you've never heard of this happening before. I wasn't sure if this is commonplace so good to know.

    Thanks again!
     

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