CEO Best Practices: How to Compensate your Employees

Video transcript: “hi there I just want to share with you I was meeting with a client just a few minutes ago and an interesting topic came up actually it was about well he’s putting a president in place so he’s the CEO and the owner and now what he wants to do is bring a president in place somebody who’s very qualified who came up through the ranks seems like a really good person so that’s real positive but the question is how do you compensate them and sure you can give more salary and a bonus and in fact we talked about the bonus and this kind of applies to salespeople as well you know the bonus on a on net income or earnings before taxes that’s a little bit tough because of the person receiving a bonus on that number if they’re not in control of expenses you could have the owner spending a bunch of money and bonusing themselves a higher cop to reduce the profit and next thing you know your share of the profit is not very much because the profits small so being bonused on the bottom line is kind of complicated and not ideal being bonused on the top line is not ideal either because you don’t want somebody who’s running the business to be bringing in a bunch of low margin margin business and so the idea is to really bonus on the gross profit because the person running the business has control over what’s coming in the quality of what’s coming in how it’s priced originally and also how it is a service in a service business for example how efficient the people are how good they are with keeping the hours down and and so forth so bonusing somebody on the gross profit is always always the way to go and with salespeople the same thing you don’t want them bringing in deals that have no margin in them you want to you want to pay them on a margin and the gross margin is a good way to do that so that’s the first thing we talked about the second thing is somehow feeling like an owner in the sense that if and when the company is sold his new president she can get a part of that so we talked about ending a amount of an increasing share of the value when the company is sold however maybe it be a part of the value increase so if the company is worth five million dollars right now and let’s say over time that person earns in twenty percent share well then if the company is sold for ten million dollars they don’t get twenty percent of ten million they get twenty percent of the five extra million that the value was added while they were running the place and that’s a million dollars in this example but on the increase in value because they didn’t really do anything to build the value at least you know as the worker bees they did but not as leaders so why pay them a bonus on the company that the value that’s already been built okay so that’s the other concept and then how do you do that well phantom stock you can look it up if phantom stock is a good way to do it because with phantom stock you’re basically giving them the value of ownership without being an owner and it keeps it a lot simpler and and also by the way in this case this woman was saying well if I’m an owner an actual shareholder then I’m gonna have some liability and she was trying to think through that so this way there’s no liability to the to the executive to the employee so anyway these are these are some really cool concepts I hope they’re helpful to you if you’re planning something like this or think of it down the road so check back with you later bye bye”