Hi,

My company is restructuring to centralise our custom installation department - the company is currently a combination of custom installation and more traditional retail stores.

The new department will focus on higher end installations.
They have asked if I would be interested in helping develop and managing an area of the department.

The issue I have is that the pay will not be much more than I already get, as the main boss is concered about current finances and the uncertainty in the economy, plus not knowing whether this more dedicated department will generate more income relative to the rest of the company which is successful.

After investigating what we could do and what is available to us I believe the department has a lot more potential than our current set up in this area and believe it could be very profitable long term.

I would therefore appreciate anyones expertise as how I could put forward a proposal that would enable me to be paid relative to how well the department is doing i.e. profit related pay.

However, as this is a relatively new area to the company there is no basis on the potential earnings of a dedicated department and it is therefore very difficult to judge exactly how much money the department could bring in.

One thing I do realise is how much extra work will be involved for the plan to work and the first 6 months might not be very profitable at all, this combined with the timescale that the larger projects tend to take.

Any help much appreciated

Not only is it going to be very difficult to try to establish what the bottom line profit is (unless you're a publicly held company, and I'm guessing that you're not), there's also a fairly large margin of error with the boss being able to fudge to books in order to pay you what he/she wants to.

I'd avoid the profit based incentive and try to work out something that it based upon figures that are easily trackable; such as gross sales or profit on sales prior to expenses.

I've been in your situation, and believe me when I say that it's really, really tough to try to compute your bonus based on the profitablility of the entire company or division of the company....unless of course he/she's willing to open up their audited books to you (and nobody in their right mind would do that unless you're a shareholder).

Stick with real world, trackable numbers.

You said: "the main boss is concered about current finances and the uncertainty in the economy, plus not knowing whether this more dedicated department will generate more income relative to the rest of the company which is successful."

Who isn't? Tell him/her that you too have concerns, such as......paying your rent/mortage, creditors, gas & light people, insurance etc. He/she's asking you to take something of a risk as well by pouring yourself into an unproven commodity (the new department).

Cover your butt, you have to.

Ahem could not have said it any better, and I agree fully, use trackable #'s and cover your A**. If you are the only one with the experience to move forward with this venture, you may even have some leverage to get what you want, to a point.

Not to rain on your parade but be aware that venturing into the high end may (probably) take longer than 6 months too. Unless I'm not getting the whole story here. There are so many things to take into account when trying to steer a company into that arena. Don't get me wrong, I believe it is the only way to go. But it won't happen over night. You have to have the proper product lines, knowledge on how to design and install these types of systems and the client base to support that endeavor. None of this happens over night and unless you already have a lot of business momentum heading in that direction, it will probably take longer than 6 months. I made that transition 6-7 years ago and it took several years of marketing to become known in my market as the high end guy to go to. And aquiring high end lines took a while (and some capital).

Good luck.

I would agree with some of the things said here, and disagree with others.

Making the argument that you have gas & electric bills to pay, etc. is fatuous. We all have bills to pay personally, including your boss. Making this point would not move the conversation forward if you were having it with me.

Applying a metric to the growth of this new division and making that a pay scale multiplier is a much better idea. Keep it simple to measure; sales, hardware margin, billable hours vs. unbillable hours, and leave it at that. You can make the case that this is a simple set of rules that you can watch and use as a goal, and a useful way to measure the growth of the division.

This message was edited by Theaterworks on 02/01/05 08:45 ET.

I agree exactly with theaterworks, you have to approach this from your boss's point of view, which is, if you bring in additional profit to the company you are entitled to a share. I own my company and have had many people try to take advantage of me with just this type of scenario. "If I had just a little more money, I could deliver a whole lot of business". Well BS. If I was your boss I would offer you a profit sharing deal and you would not get paid until I did. You needs (bills etc.) are of little concern to the business. If the business doesn't make money than neither will you. You need to demonstrate results first.

PS I have shared financial statements with employees. I personally think it is a good practice. It encourages trust and helps everybody understand exactly how the business works.

I was simply illustrating the point that the boss is not the only one who is at risk from a new venture. IF I were the employee, I would certainly look at things from the risk angle just as much as I would from angle of the potential payoff.

Just as that argument would hold no weight with you as the employer, hearing about the boss's potential for risk would only hold so much weight to me as an employee.

More to the point, an "boss" by definition assumes the risk which is why is obtains the rewards of retained earnings. An employee assumes only the risk to his health that may be implied by doing his job. I fully understand why a boss might wish to shift the risk away from himself and on to the employee but it would be foolish for the employee to assume that risk. Best to look at this from a commission point of view. Sell X amount of business and you receive Y bonus. It is not your concern as an employee how efficient these jobs are or how pofitable, especially as you do not have full control over all of the factors. If your boss takes on a new line of distributed audio products ( as he would if he were a Phast dealer ) and you sell that product to the max. Is his bad decision your poblem or his. If it bankrupts him it certainly affects you but ultimately those are the risks of ownership. I am very much in agreement with AHEM. You should never make an agreement based on some net but rather on the gross. It is your boss' responsibility to determine what his net profit is and what per centage of that he can share. It is no different if he decided to sell upscale audio/video equipment and his sales force was on commission. The per centage of that commission may need to come down to reflect the higher prices of the goods sold but it is not the salesman's responsibility if his boss chooses unreliable products.

Profit sharing for an employee is simply a bad idea unless you have access to his financial statements and you have a CPA. If you cannot audit those books what good is it? If you do not understand the books how would you now if the profit loss statement was doctored? Your boss either wants to play in the deep water or he does not. Ever get married? Live in a community property state? Economically, is there a difference? He makes the commitment and accepts the risk. Otherwise, he should make you a partner in the business. Or you should work off a known number that is clearly identified and verifiable by you --which is what gross numbers are. Large jobs are not very profitable but they are fun. They require lots of engineering, documentation and programming to make work. 5 per cent of 200k is still more than 30 per cent of 25k. But how could you determine profitability? Too many factors and a less than honest boss makes this problematic. Base your fee structure off a gross. Let the boss figure out what his net profit is ( and if you do not understand the difference between gross and net profit then as we used to say in mathematics, QED.)

Alan

So, what percentage of gross is appropriate? 1% of gross is approx. 10% of net, but it's hard to attract anybody w/ 1% of anything.

cmo,

I think tying your salary or bonus to some financial number is not necessarily a good idea. Why not try a different tactic...

What does the boss want from YOU in this new position. Work on writing goals that are quantifiable and measureable. Make sure the goals are things that are under your scope and control. You are not looking for these goals to show immediate profit, but rather movement in the right direction at a agreed pace. You need to write the goals on a quarterly basis, and be graded on a quarterly basis. This can tie to a Bonus Pool amount. If you achieve 80% of goals, you get 80% of the bonus.

This is a really good test for both of you. If you find the two of you can't agree on what the goals should be, that's a sign as how things will work in the future. Be sure to discuss things like, is this goal gradeable on a scale (If you had a goal to achieve 70% billable hours from your tech's, and you achieve 65%, what amount do you get. What if it's 75%?), Is the individual goal 100% if complete and 0% if not complete. What is the weight of the individual goals.

Next the hardest part. Once a quarter starts, and you both agree on the goals, no changing them without buy in from both parties! This makes sure the supervisor actually thinks about what they want, before they commit your time.

I know this kind of system can work, I use it in business today. But to make it work you and your supervisor must write goals that reflect what they actually want done.

Good Luck!

They wouldn't be interested in making you a part of this new division if they didn't feel that you have something to offer. It sounds like they haven't done their homework in the demographics dept. and they really sound ambivalent about the whole thing. They do however have the resources to give it a shot, and before they spend too much of those resources, they are going to see how it goes, then move to the next commitment level. Someone once told me "you will never get a better price unless you ask for it". He was right. Let them know that you are willing and prepared to give this thing your best shot, and that you will treat this new opportunity like it was your own company since it has the potential to grow into something very lucrative for them, and you. SoThen go one to suggest that since they aren't ready to commit to a larger salary, why not give you a share of the company. Point out that this will create huge incentive for you, and it's a no risk option for them in the event the division crashes. If they are afraid to do this, then push for the higher salary. Something has to give here. The worst thing that can happen is rejection on all fronts. Nothing ventured, nothing gained

Ain't that the truth. "It's your business (meaning not theirs)" I hear them tell me. It's true on several levels. Don't complain to your staff about how hard it is; they don't care.

Another question should be in regard to the promotion of the dept.
As a retailer, he probably already sets aside a certain percentage of sales to reinvest into the marketing of the store(s).

Is your dept going to be set up this way?? Will it be an independant marketing budget, or are your dollars going into the community pot??

Thanks for everyones help so far.

It is clear to me that my first concern would be how exactly the gross turnover gained from the installation department can be measured independently from the rest of the business as it will be based at one of our main branches.

In fact, part of the design team will still be, initially working in the store on a part time basis, the grey area becomes - what is the installations departments business and what is the stores business as custom installation has traditionally been done as part of the store.

2nd rick,
We already have a certain amount of money for advertising the department, although I believe I should request that a certain degree of the extra income generated should be put back into improving and developing the installation department for the future, if and when it proves a success.

technobeam1,
I think you have hit the nail on the head.
We as a company are already quite well known and it is our customers as well as our suppliers which is really driving the idea for a new department as opposed to the company owners - hence the lack of research i.e. it is our customers that are asking us if we do bigger and more specialised systems.

The danger is that the main boss, athough enthusiastic, isn't really that interested until he sees some sort of results obtained by such a department and probably won't commit properly until he can really see the benefits.

On the plus side we have the freedom to run and develop the department the way we want, however until we obtain some sort of results - financing will be limited.


The boss is more of a business man than an AV enthusiast.