Profit Participation

Your company sold 43 million units of your iPhone app, “The Vominator.” At the touch of a button, you can aim an iPhone at someone and make them vomit. Big hit at weddings, bar mitzvahs, and corporate retreats.

Anyway, your company only has 12 employees, and after Apple took its third, and the other players took their pounds of flesh, you made 24 million bucks this year. Now you own the company. You founded it. You risked your lawn mower money to start it. You own 100 percent of it.

But you want the people who work 55 hours a week for you to enjoy some of the rewards, if there are any. So you have a profit sharing, or profit participation plan, such that, based on the “class” of employee they are, they get a certain percentage of profits as a kind of optional bonus paid to them each year.

This was a banner year, and you agreed to set aside a third of all of your pre-tax cash profits to live in the profit participation pool, meaning that, this year, of your 24 million pre-tax dollars in cash flow from The Vominator, a third of that, or 8 mil, is in the profit participation pool.

The 5 engineers get 10 percent each, the 6 product managers get 5 percent each, and the remaining 10 phone and service people get 2 percent each.

So…Paul Pukenheimer, the engineer, gets 800 grand in bonus money. That’s 10 percent of the $8 million of pre-tax cash profits. Saul Spewman, one of the product managers, gets 5 percent, or 400 grand. And Hannah Hurlington gets 2 percent, or 160 grand in bonus money in this banner year. Yeah, not bad for a 19-year-old high school dropout whose only skill is that she’s good on the phone.

Profit participations by employees are common in service firms populated by lots of professionals who want to feel like partial owners, not just employees. And they’d prefer to feel it, uh, in their savings accounts, as well as their hearts.