Everybody has secrets.
J. Edgar Hoover used to keep his enemies' secrets in his FBI files by day and then sometimes secretly wear women's clothing at night. We found out about that soon enough. Mel Gibson used to keep his alcoholism and anti-Semitism a secret, but no more. Our president has been known to secretly smoke cigarettes. I've always had a secret crush on Katie Couric.
Well, now you know.
Kurt Marone's got some secrets too. No, he doesn't wear women's clothing at night ("makes my legs itch"), drink too much alcohol, practice anti-Semitism or lust after Katie Couric ("too annoying").
Kurt's secrets lie in his financial statements. No, he's not hiding anything illegal. He just doesn't want people to see how much or little he's making.
"This is nobody's business," he told me a few years ago. And he was right. One of the benefits of being a penny pincher and owning your own company is that you can fly it under the radar and not have many others know all about your business. Our secrets are our secrets.
But times change.
J. Edgar Hoover died and his enemies eventually disclosed his secrets. A drunken night in Malibu brought out Mel Gibson's. And when Katie Couric winks at me from behind that anchor desk, I just want to shout out my secret feelings for her to the whole wide world!
But enough about Katie.
This is about Kurt. And for Kurt, what changed was the recession. It's caused him to reveal his secrets. And share his financial statements. Particularly with his employees. Why? "To keep them employed," he said. Kurt needed to come up with better ways to pay his people. So this penny pincher sacrificed secrecy for a bonus plan. And it turned out to be a great decision.
As the recession hit, Kurt found it tougher and tougher to pay his employees. He was able to lay off a few nonessential people. But he didn't want to part ways with so many of the valuable people who helped him grow his business. People that he trained and who knew the company's operations as well as he did. People who would be busy once the economy began picking up. So he decided the fair thing to do was to tie their compensation in with his company's profits. If they all worked hard and succeeded, they'd get more money. If the company didn't do as well, then nobody (including him) did as well.
At the beginning of the year, Kurt determined he would allocate 30 percent of his profits to his employees for the next year. Not sales - profits. He did the same thing in the following year, too. Share the profits like this? What is he, some kind of a milquetoast socialist? No way. Like me, Kurt's a capitalist and a red-blooded male through and through. Sure, he's not a big fan of Katie Couric. But he's mentioned Barbara Walters' legs to me more than a few times.
Of the profit share, Kurt equally split the 30 percent among his four departments: operations, sales, service and financial. And then he let competition take over. He allowed his managers to grab the money and decide who, if anyone, in their department was to receive the bonuses. Including themselves. This gave the managers full discretion to reward those employees that they felt deserved the most. Some managers based this decision on formal employee reviews with goals and objectives. Others were more discretionary. Kurt didn't mind.
So why shouldn't the managers just grab it all? Well, Kurt, always had the final say. Each manager submitted to Kurt their proposed split of the profit share along with explanations why. And Kurt could override these decisions if need be. So much for socialism.
Kurt didn't stop at the 30 percent profit share. He took another 10 percent of the profits and made a matching contribution to the employees' 401(k) plan, based on the bonus they received from their manager. That little extra, of course, only went to those employees who participated in the plan. This is Kurt's little way of saying, "Thank you for putting money away for your retirement so you won't come to me with your hands out when you turn 59."
Kurt's bonus plan worked. His employees, now fully vested in the company's profits, were motivated to ensure the company did well. They understood that the opportunity to get a year-end bonus was fully in their hands. They knew they had to please their own department head, as he or she would be making the bonus recommendation. Even participation in the company's 401(k) plan picked up as more employees wanted to take advantage of the extra company match Kurt was making at the end of the year.
Kurt plans to continue this plan, even as the economy pulls itself out of the recession. Some economists are warning that too much liquidity in the system could cause potentially high inflation. Kurt plans to use this plan as a hedge - keeping raises as low as possible and offering employees the opportunity to make more money through the bonus plan.
Does a 40 percent profit share sound like a lot? "Not to me," says Kurt. The generosity of this plan is returned by his employees' loyalty. Not that they're so in love with Kurt. It's just that it's tough to leave a job that pays so well for somewhere else. Kurt found that paying his people well kept them working hard and productive. Penny pinching just to save a few bucks here would cost him way more in the long run.
"My secrets are out!" complains Kurt. "They get to see everything."
No, not the ladies' stockings he's wearing under his jeans. He means financial statements. For any penny pincher considering such a profit-sharing arrangement, you better be prepared to let it all hang out. Kurt's beloved personal, private, only-for-his-eyes secret income statement suddenly became public info for everyone to see.
So do you have any secrets? A little pot-smoking in your past? A dent that you put in someone's parked car that you never reported? A penchant for watching iCarly? Maybe you can hide these things. Maybe you can't. But if you're going to put in place a profit-sharing plan like Kurt's, get ready to share your finances with all those around you.
Gene Marks, CPA, is the owner of the Marks Group, which sells customer relationship, service, and financial management tools to small and midsized businesses.
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