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Is being paid well not good enough? Companies tend to give out stock as part of a package in lieu of all cash. If you have all you want in cold hard cash, what’s the problem?



>Is being paid well not good enough?

I would say no. Since the employees are one of the keys to the success of the company, why should they not share in the additional profits above and beyond what is planned for the year?

>Companies tend to give out stock as part of a package in lieu of all cash.

Some do. In my experience, it's been about 50/50. Startups obviously tend to lean more toward equity and lower cash, while larger companies pay well and ofter options or RSUs.

I pay market and do profit sharing.

>If you have all you want in cold hard cash, what’s the problem?

I'm not quite sure how to respond to this. If you make a good salary, would you turn down even more money?


> Since the employees are one of the keys to the success of the company, why should they not share in the additional profits above and beyond what is planned for the year?

That's a pretty peculiar viewpoint. If you went to a restaurant, ordered and paid for a burger, received your order with a bite taken out of it, and the cook said "Well, I worked really hard to make the hamburger that you ordered and it turned out extra well. That means I deserve a bite." when you complained, would you find that reasonable?

(It's not even entirely hypothetical: https://www.npr.org/2019/07/30/746600105/1-in-4-food-deliver... )


Your analogy falls apart. Re-read what I wrote: "share in the additional profits above and beyond". Let's say we expect to make $1MM for the year. We need to keep a reserve to pay people when we are between contracts, rent, taxes, SAAS, etc. I then work out I can pay 5 people $100K each (this is an example, not actual). If we then make $1.2MM per year (for any number of reasons) how is it peculiar that the employees should share in the extra $200K? That's nothing like your analogy.


As far as financial accounting obligations go, shareholders should certainly share in the extra $200K. Profits are part of owner’s equity.

So the simple question is, if an employee does not own any part of the company, are they entitled to a share of the extra profits?

If the employees want to be entitled to a share of the extra profits then one obvious solution is that they need to become shareholders. Normally a share of owner’s equity is given in exchange for money. Instead of buying those shares with money, that’s what startup employees are doing when they take a lower cash pay in exchange for shares in a company that is unable to pay them full price.

I see your argument, but we’re describing a situation where a full-priced if not handsomely paid employee takes zero risk with a steady “what they want in cold hard cash” salary and then when the company does extra well they are entitled to a share of the upside.

I can recognize that giving employees a share of profits may very well be what businesses need to do in 2019 to recruit and retain the best talent. But their salary is what was agreed upon for the work to be done. So let’s call it for what it is — it’s something nice to do. It may even be a talent-recruiting and talent-retention tool that gives your business a competitive edge. But it’s not a financial obligation.




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