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Using a percentage of sales as compensation.
soapysavon93
subscriber Posts: 1
Forgive for being a bit lengthy, I am a new member to the site and this question has been nagging at me for the last few weeks.
I was looking into setting up a small liquor store in Texas. Ultimately, my objective is to hire a competent manager and clerk, and then incentivize them to operate as well as possible so my involvement with the business is not necessary, and I can just get a check sent to me every week. The only way I believe I could incentivize and motivate my employees to operate, expand and grow my business for me, without me constantly looking over their shoulders and actively managing the establishment, is to give them a cut of profits and possibly equity.
For example, instead of paying the manager $x/hourly rate, plus benefits, and ACA health care etc., the manager would receive 40% of the profits from the store, and 1% of the equity as a bonus for growth (up to a 9% cap). This would be his/her entire compensation package.
So my question is, is it legal to have it setup like that?
My thinking: As long as I give equity, the manager becomes a partner right? And therefore, is an owner just like me, so I would assume I wouldn't have to pay for healthcare costs and what not. Perhaps most importantly, the manager is heavily incentivized to expand the business and grow sales. The only shortcoming I could think of with this plan is that the manager sees the money that I am making and decides to set up shop himself in the same market, but I'm sure I can stop that sort of thing in a contract the manager would have to sign before agreeing to any compensation.
For the record: I am not trying to screw over my employee. If anything, this setup creates the possibility for my employee to grow the business into a multi million dollar enterprise which in turn would give my employee the same percentage of profits of a much larger enterprise. Social mobility in the United States is in short supply and this setup provides one more true opportunity for somebody to "make it" if they are smart enough.
I was looking into setting up a small liquor store in Texas. Ultimately, my objective is to hire a competent manager and clerk, and then incentivize them to operate as well as possible so my involvement with the business is not necessary, and I can just get a check sent to me every week. The only way I believe I could incentivize and motivate my employees to operate, expand and grow my business for me, without me constantly looking over their shoulders and actively managing the establishment, is to give them a cut of profits and possibly equity.
For example, instead of paying the manager $x/hourly rate, plus benefits, and ACA health care etc., the manager would receive 40% of the profits from the store, and 1% of the equity as a bonus for growth (up to a 9% cap). This would be his/her entire compensation package.
So my question is, is it legal to have it setup like that?
My thinking: As long as I give equity, the manager becomes a partner right? And therefore, is an owner just like me, so I would assume I wouldn't have to pay for healthcare costs and what not. Perhaps most importantly, the manager is heavily incentivized to expand the business and grow sales. The only shortcoming I could think of with this plan is that the manager sees the money that I am making and decides to set up shop himself in the same market, but I'm sure I can stop that sort of thing in a contract the manager would have to sign before agreeing to any compensation.
For the record: I am not trying to screw over my employee. If anything, this setup creates the possibility for my employee to grow the business into a multi million dollar enterprise which in turn would give my employee the same percentage of profits of a much larger enterprise. Social mobility in the United States is in short supply and this setup provides one more true opportunity for somebody to "make it" if they are smart enough.
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