Key Employee Requesting Revenue Share

[Syc]

Hi!

Hope you've had a good start to 2018!

I know you all place tremendous value on your time so I’ll be brief.

Two years after starting my company I took on an employee in a project manager role, which quickly evolved into more of a COO position as company grew. They've been with me for 18 months now and have become extremely valuable to the company. The business is very HR-focused, with 50+ contractors to manage and lots of deadlines. Bottom line—they're excellent at managing others and it would take significant searching and retraining to replace them.

They've requested a revenue share agreement as part of their pay package. I'm not against it, but i've never handled anything like this before so curious if your experience has taught you any lessons about handling it. Naturally, i've reached out to my own network and researched the issue, but would specifically love to get your thoughts on:

1. Revenue share is more risky for company than profit share, but i understand profit can be easily manipulated. Is there anything i should be aware of with this type of arrangement (RS)?
2. Percentage-wise, are there any guidelines? Any experience in capping payments?

Thanks in advance!

 

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[pmaloneus]

1. Revenue share is more risky for company than profit share, but i understand profit can be easily manipulated. Is there anything i should be aware of with this type of arrangement (RS)?
2. Percentage-wise, are there any guidelines? Any experience in capping payments?

For #1 - Find something you are comfortable with. Seems like you have a good employee, they should work with you to find something where everyone is happy. You could also do profit share of specific accounts they 'manage'. Less risk on your part, but if they are truly a 'COO', would that be too low for them?

For #2 - I hate the idea of capping because it always de-incentivizes full growth. Start low and if crucial milestones are hit, give up more of the share (profit/revenue or whatever you decide in your first question). This way, their mind is always on growth vs. a 'cap'.