Which method of compensation would you prefer?

[Descartes]

ATOT is a great resource of diverse opinion, so I'd like to pose a question to you all. My partners and I are discussing a restructuring, and the primary concern is trying to keep quality resources.

So, out of the following forms of compensation, which would you most prefer and why?

1) Salary + benefits. This means you'd receive 'n' income and certain quantifiable benefits like PTO.

2) Salary - benefits + bonus. This means you'd have a base salary, but based on performance you'd receive a bonus. This is usually a percentage of net profit for your own level of production.

So, if you received $100k/yr compensation (easier to calculate) and you billed $200k/yr, then you would receive 10% of that profit less expenses. 10% seems like a reasonable number for bonuses to actually make a difference.

Also, there would be no PTO. Time off means less income for you, but extra billable time means more money.

That's it.

Please note that this would apply only to billable resources, so it's not as applicable to accounting, HR, etc. Also, there will always be people that prefer being on a 1099 which is similar to #2.

The main motivation is to help compensate those that put forth a lot of extra effort. Someone working 80 hours per week and getting compensated the same as the guy working barely 40 leads to a lot of issues. If you know that every unit of effort on your part increases your overall return, then you feel engaged in the process, imo.

Thoughts appreciated.

 

[darkxshade]

I'd rather have benefits cuz you never know what can happen to your bonus if things go south.

 

[Kelemvor]

If benefits means Health Insurance, that outweighs any bonus there could be. All it takes is one accident and you're out hundreds of thousands of dollars in medical bills.

And yes you can get personal insurance but they don't cover anywhere near the same number of things or the same amounts and it's insanely expensive.

 

[FoBoT]

i like getting a bonus, (where i work now) even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

 

[Descartes]

Originally posted by: darkxshade
I'd rather have benefits cuz you never know what can happen to your bonus if things go south.

Correct, but that's the trade-off. Individual insurance isn't feasible for some as well, so many have to go on just to get the company's group policy.

But, for younger people, people that generally have more energy and seek to grow as fast as possible, I think it's a viable option.

Thanks for the feedback.

 

[Safeway]

If 'benefits' include Health Insurance, Dental Insurance, Flexible Spending Accounts, 401(k) Matching, and similar staples:

'Benefits' >>> Bonus.

 

[Descartes]

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

 

[KMc]

If you really want quality resources, then you'll consider Salary + Benefits + Bonus.

 

[mcvickj]

Option 1. Hand down.

 

[PricklyPete]

The only problem with the bonus being attached to billable hours is if your company goes through a dry spell and does not have the clients to bill those hours to. Then you're employees may get someone disgruntled as they have no way of achieving the bonus that has been dangled out in front of them.

Still, I'd much rather have the option of a bonus.

How is PTO/Vacation handled in situation 2 again? No one gets vacation...if you take off you just get less billable hours which negates your chance of getting a bonus? Is that what I understand? This seems to promote not taking any vacation time...which I'm not a fan of. I've gotten spoiled working for a small European consulting company where they very much encourage you to take your vacation time (which they give a ton of).

Our bonuses revolve around a few things, some of which involves billable hours...but not all billable hours as sometimes a consultant is not staffed due to client issues and is working on internal projects until they can be re-assigned.

 

[darkxshade]

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

If that's the case, I'd rather have benefits because $2600 more/year is not worth a lot after taxes and once the irs takes their share, what's left is not worth it if I'm going to give up insurance or what not.

 

[TwiceOver]

Option 1. But you would have to define benefits a little more. I always viewed medical/dental insurance as a benefit.

Insurance alone can cost you ~$5000/yr. At least that is what I pay to insure my wife.

 

[Descartes]

Originally posted by: PricklyPete
The only problem with the bonus being attached to billable hours is if your company goes through a dry spell and does not have the clients to bill those hours to. Then you're employees may get someone disgruntled as they have no way of achieving the bonus that has been dangled out in front of them.

That's correct. There's no "bench" so to speak. It's always a compromise. You get frustrated when you're not billing and thus don't get a bonus, but you get frustrated when you bill 3000 hours in a year and get compensated like you worked 2000 or less.

I've found that many that are early in their careers prefer option #2, and it's hard to keep them unless effort turns into dollars.

Still, I'd much rather have the option of a bonus.

How is PTO/Vacation handled in situation 2 again? No one gets vacation...if you take off you just get less billable hours which negates your chance of getting a bonus? Is that what I understand? This seems to promote not taking any vacation time...which I'm not a fan of. I've gotten spoiled working for a small European consulting company where they very much encourage you to take your vacation time (which they give a ton of).

That's correct. As I explained above though, it puts the choice in the employee. If they kill it and bill 60 hours a week, they want that extra income. If they want to float on 40 hours a week or less, then it really doesn't work out.

Our bonuses revolve around a few things, some of which involves billable hours...but not all billable hours as sometimes a consultant is not staffed due to client issues and is working on internal projects until they can be re-assigned.

I've considered that as well. As someone else said, salary + benefits + bonus, but it's just the reality of things that you can't have the higher salary, full benefits and full bonus. Something has to give. The person that wants to bill, bill, bill will generally want to maximize their total income.

I'll give it some more thought. I didn't think it would be so unanimous for #1.

 

[Descartes]

Originally posted by: darkxshade

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

If that's the case, I'd rather have benefits because $2600 more/year is not worth a lot after taxes and once the irs takes their share, what's left is not worth it if I'm going to give up insurance or what not.

I agree, but I'm also purposely avoiding the actual numbers. Suffice it to say that the bonus potential is higher, and more than compensates for the basics of any benefits package.

 

[ahurtt]

Originally posted by: darkxshade
I'd rather have benefits cuz you never know what can happen to your bonus if things go south.

:thumbsup:

Never give up a sure thing that is good for the long term for something that you might or might not get in the short term.
In my experience bonus payout is not determined solely on your own performance but other factors such as general economic conditions and performance of the department or company as a whole. You could really bust your ass and shine during a year when the company as a whole is not doing well and ends up in the red and then you end up with a really shitty bonus or even no bonus at all. Bonus is not guaranteed and is usually subject to change at the whim of the management/executives.

 

[Safeway]

Descartes, are you an attorney?

 

[Descartes]

Originally posted by: Safeway
Descartes, are you an attorney?

Nosir. I'm one of those worthless "consultants" I (we) do business process consulting, specifically as to how it relates to the use of technology. Much of my work is in software, and using software as an adjunct to existing hardware. So, if you wanted to figure out how to use your existing SAP deployment to control robotics on the manufacturing floor, that's what we'd do. I'm not saying you should do something like that though...

 

[sonambulo]

I'm young and healthy enough that I'd go for a bonus as long as it doesn't get taxed as such. If it does, then I might as well go with benefits.

 

[poopaskoopa]

Can you offer both options? For people with spouse and kids, the package with benefits(health, specifically) would be better, assuming that your package is similar to what my last employer offered. I remember that the cost of insurance used to vary from $136/employee to ~$1400/employee based on the number of people under the coverage. For someone like me with no dependents, I'd go with option 2. I suppose it's too expensive to do salary + benefits + bonus for the workhorses?

 

[FoBoT]

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

i meant in MY job , not in your scenario
if i worked for you with that bonus formula, that would be swell

 

[ahurtt]

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

But what happens when you suddenly are no longer allowed to work 50 hours per week because the company has to make its quarterly or yearly numbers so they clamp down on all overtime hours? And then when you get that news you are so angry you are not paying attention while you are driving and you crash into a tree rupturing your spleen, breaking both your legs and arms, suffer a concusion, and are unable to work for several months?

I just think the bonus is a carrot dangled out there for the short-sighted. Trust me, if the company thinks they are paying out too much money in bonuses they will find a way to limit it. Don't trust them.

 

[JS80]

I'd rather get salary + benefits + bonus.
Benefits is worth a lot because it's pretax.
I would maybe negotiate a lower salary + benefits + bonus.

 

[MrChad]

Originally posted by: Descartes

Originally posted by: PricklyPete
The only problem with the bonus being attached to billable hours is if your company goes through a dry spell and does not have the clients to bill those hours to. Then you're employees may get someone disgruntled as they have no way of achieving the bonus that has been dangled out in front of them.

That's correct. There's no "bench" so to speak. It's always a compromise. You get frustrated when you're not billing and thus don't get a bonus, but you get frustrated when you bill 3000 hours in a year and get compensated like you worked 2000 or less.

I've found that many that are early in their careers prefer option #2, and it's hard to keep them unless effort turns into dollars.

Not to mention that billable hours can vary greatly depending on the client. I've encountered many clients who won't allow consultants to bill over 40 hours a week without prior approval (i.e. special circumstances such as a project deadline). In those cases, your staff's compensation will limited not by lack of effort but by the unfortunate roll of the dice when it comes to their project assignment.

 

[JS80]

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

That's a really low bill rate. If your rate is $40/hour your bill rate is probably $150-250/hour especially for SAP consulting.

 

[Descartes]

Originally posted by: ahurtt

Originally posted by: Descartes

Originally posted by: FoBoT
i like getting a bonus, even though the formula is bogus, that is , they can't or won't tie it directly to MY performance, they tie it to the overall company performance, which i can't directly impact in my role

Sorry, let me clarify:

Your bill rate is $50/hour.
Your rate is $40/hour.
You work an average of 50 hours a week.
The gross profit for each week is $2500.
Your income for the week is $2000.
The net profit for you is $500 for that week.
Your bonus would be $50 for that week, or potentially $2600 for the year.

This means that your performance directly impacts your bonus. The performance of others won't impact you.

[edit]Note this is overly simplified. There is overhead, etc. to consider. Hopefully the point is clear though.[/edit]

But what happens when you suddenly are no longer allowed to work 50 hours per week because the company has to make its quarterly or yearly numbers so they clamp down on all overtime hours? And then when you get that news you are so angry you are not paying attention while you are driving and you crash into a tree rupturing your spleen, breaking both your legs and arms, suffer a concusion, and are unable to work for several months?

LOL. Well, certainly everyone hopes that doesn't happen. It's more volatile to go with option #1, that's for sure. It's like investing in foreign stocks vs. your average high-cap US stock, and some people are simply willing to assume more risk for more return.

I just think the bonus is a carrot dangled out there for the short-sighted. Trust me, if the company thinks they are paying out too much money in bonuses they will find a way to limit it. Don't trust them.

Well, in this case I am the company, and I really want to do what's right by everyone. At the same time though, companies have expenses and there's simply no single system that's absolutely fair to everyone. It will come down to a personal choice, either to your benefit or detriment. In my experience, most people make choices unknowingly to their great financial detriment, and I'm just trying to balance that out a little.

I also agree that it's slightly short-sighted, but you have to maximize your earnings while you can, imo. When you're young, you can assume more risk than you can when you have a family. Take the risk now, maximize your earnings, put that away and then let it grow throughout the rest of your years.

Appreciate the feedback...