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Comment by rdtsc | Hacker News Reader

I find options confusing. How about this instead - a contract with the employee saying they get disbursed a % of the annual profits. If company does well they get a % of the profit. If it does badly (loses money) that year they get 0. Is that stupid? Seems simple so probably is stupid... But it would seem to incentivize the employee to make the company more profitable.

I'd trade a reasonable % every year over a mythical pie in the sky exit one day. Yeah, I understand it is nice to dream owning a yacht and sail the world one day, and that is worth some something (in other words the ability to dream about it is important and people will get into situation to be able to do it). But I am more of a boring pragmatist and would rather have a bit less but more predictable reward every year or month instead.

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Most startups make very little or no profit while they grow. They're often sold long before they turn a profit. In those cases a % of profit would be worth 0 while equity could be worth quite a lot.

Profit sharing does have a long history in more traditional industries though.

> Most startups make very little or no profit while they grow.

Ok agree, that was the obvious bit I missed. I never really worked for startup, so wasn't familiar. So idea was silly, makes sense now.

How many startups have you worked for that are turning a profit? Most technology ventures less than 5 years old are running in the red or they are reinvesting their profits to grow faster.

I've worked for a small company which turned out profit for many years.

> Most technology ventures less than 5 years old

Well you're right there. So it was a dumb idea.

Generally speaking, that is how some bonuses work.

Yeah exactly. Agree. This would just formalize it and tied directly to the bottom line. If company turns into Google it would still be a chance to make it big. If it doesn't well, it doesn't, it's a startup.

Google "Hollywood accounting" for an idea of why this doesn't work.

Oh so they'll make everything look like loss to avoid paying their employees? If owners will go out of their way to inflate expenditures just not to have to pay their top performers well they'd fail at some point anyway. They could just as easily screw employees over with options then...

They'll convince themselves that it is standard practice, comparable with what others in the industry are doing, conformance is critical for attracting investment, etc. etc.

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