Context

This is the fallback plan we executed in 2023 as Stock options are still a WIP. This is kept very simple.

Why

Same as Why

Payments are made every 12 months at the end of the fiscal year, which is also the calendar year for us.
Payments are made around the end of December or January / early February.

A % of the net profit is allocated to the profit sharing. It forms the “Base Amount”.
The % allocated is between 8% and 15% during “growth mode”. This is based on the strategic use of the cash for the given semester/year. Effectively, the more likely we might need the cash to invest in future revenue, the lower the % will be.
If we ever reach a point where we have so much $ we don’t know how to spend it. It could make sense to go as high as 50% like Converkit, Gumroad. However, today, we have so many different areas we can invest in to grow revenue. The long-term target is to be able to make this bonus hit 10–20% of annual comps. At this level, Profit sharing becomes a real perk.

The distribution between people is a factor of:
- Tenure. Why? In our line of business, the length of the tenure is important, as product iteration cycles are in the order of ~1-2 years. TODO: maybe cap at 6 years.
- Base salary. Why? To be proportional. This would match with the recommended approach in https://www.indexventures.com/rewardingtalent/option-grants-at-seed for stock options.
The amount is significantly less advantageous for non-full-time employees. It follows Non full-time employees, as we are in a winner-takes-it-all market. The decreasing factor applied is: In this spirit, we apply the following function (exp(3x-3)) to determine the stock option package based on the FTE ratio.

The exact formula used so far was:

= ((tenure * base salary)+(50% tenure + 50% base salary)*3)/4

The distribution of the Base Amount is structured as a pool.
People join the pool after a 5-month cliff. The cliff is aimed to keep it fairer for the contribution made in that time frame and help in case of mis-hires. Conceptually, we want a 1-year cliff. Since profit sharing is done once a year, this should be an OK-ish approximation.
Commissioned roles are not included in the pool. They already get a % of the revenue.