Business Thoughts

How Does Profit Share Work When Your Founder Doesn’t Want Anymore Profit?

In This Article:


Our Founder Has Had Enough

In March of 2021, our founder let us know that he has enough.

“My house is enough, my cars are enough, my kids’ private school is enough, my vacation fund is enough. I’ve seen enough of the world. My rainy day fund is enough, my take my parents on vacation fund is enough, my buy a small house for my in-laws to move near their grandkids fund is enough. 

There is no more “Life changing money” for me. I’ve lived a life well within my means, so what do I do when I’m content?”

-Wil Reynolds

TLDR: Wil decided he will continue working at Seer Interactive and earning a salary for his work, but he will no longer take any profit from the business – funneling that money into a Company Reserve, The Team, and Charity.

We received a ton of questions on how a profit share model like that could work — this post is meant to answer that question.

Wil wrote two medium posts on this topic if you want to dive more into the “why”:

Living a Life of Enough. Part 1 — My Day 1s

Living a Life of Enough. Part 2 — The $50 Million I don’t want

And here’s 2-minutes on what he hopes to accomplish:


Where the Profit Goes

Back into the Company

The first 10-30% of Seer’s profit each year will go back to the company in three ways known as the “Reserve”:

  1. Taxes
  2. Extra payrolls in the bank (team security during market fluctuations)
  3. R&D, Innovation, and Risk evaluated annually

To the Team

There are two ways that the profit is deployed back to the team.

1. Profit Share Plan

The Profit Share Plan pool total will be 15-25% of Net Income after the Reserve.

All employees with Seer for 18 months who are not currently in the Phantom Equity Plan (more on that next…) will receive profit shares 2x / year.

Team members with less than 18 months tenure still have an opportunity to earn discretionary portions of the Profit Share based on specific performance goals set by the Divisions.

Once the Profit share pool and Reserve are complete…

2. Phantom Equity Plan

A form of ownership that provides each member the financial benefits of owning shares without having actual ownership of company stock.

These folks will also receive bi-annual bonuses based on net income and their share amount.

Additionally, if Seer ever sold, they would receive their corresponding payout from the proceeds.

To Charity

Everything leftover goes into restricted accounts (most likely a combination of trusts and other financial vehicles) that must go into improving the world somehow via charitable donations.


Team Profit Share Plan

Team Profit Share Rules

  • All Phantom Equity holders are withheld from Profit Share
  • Must be at Seer for 18 months to receive the Fixed Profit Share
  • No tenure limits for the Performance-based Profit Share
  • Must be a full time employee
  • Must be an employee on payment date
  • Seer Alumni who return to Seer have their previous tenure counted

Team Profit Share Payout

Bonuses will be paid twice a year. 

That means Seer’s Net Income will be calculated:

  • June 30 – Projected
  • December 31 – Trued up to end of year net income

Once the calculations are complete, the payout schedule is:

  • July 31 – 50% of projected bonus
  • 02/15 – Annual true up based on end of year net income

Fixed Profit Share: 60% of an eligible individual’s Profit Share

This is where the tenure requirement of 18 months comes into play.  

The Fixed Profit Share is calculated as an eligible team member’s percentage of payroll (an eligible team member’s salary / the entire eligible company’s salary combined).

Using some example numbers to show how this all works:

Assumptions:

  • $5MM = entire eligible company’s combined salaries
  • $430K = fixed profit share pool
Seer’s Fixed Bonus Plan
Team
Member
Salary Eligible
Payroll Total
% of Payroll Fixed
Bonus Pool
Mid-Year
Bonus
Total
Bonus
1 $75K $5MM 1.50% $430K $3,225 $6,450
2 $48K 0.96% $2,064 $4,128
3 $62K 1.24% $2,666 $5,332
4 $95K 1.90% $4,085 $8,170
5 $105K 2.10% $4,515 $9,030

Taking Team Member 1 as an example:

We divide their salary by the total payroll:

$75,000 Salary

= 1.50% of Total Eligible Payroll

÷

$5,000,000 Total Eligible Team Payroll

 

Then we take their % of total payroll multiplied by the fixed bonus pool:

1.50% of Total Payroll

= $6,450 Total Bonus

x

$430K Fixed Profit Pool

 

Divide that by 2 for the mid-year payout:

$6,450 Total Bonus

= $3,225 Mid-Year Payout

÷

2 for the mid-year payout

And as long as the net profit estimates pan out, another $3,225 bonus will drop for Team Member 1 at the end of the year. 

If profit is under, the payout is less. 

If profit is over, the payout is more. 

Easy peasy.

Performance-based Profit Share: 40% of an individual’s profit share

Factors such as the quarterly reviews, time tracking compliance, revenue-per-headcount, and contributions towards division’s yearly goals will determine a team member’s Performance Profit Share.  These are all set at the division level by the division leadership and may vary.

This bucket may also be used by Directors and VPs to bonus folks who have been here less than 18 months. Tenure is important – the consistency to show up day in and day out putting your best foot forward. But tenacity is important too. And those who come out of the gates swinging on day 1 deserve to be rewarded as well.

Team Phantom Equity Plan

This is where it gets a bit more complicated.

Wil is actually parsing off pieces of phantom ownership in his company (where he is the sole owner), to the folks that have had his back in building Seer into the company it is today. 

This plan, like the Profit Share plan, has a bi-annual bonus payout. 

The kicker here is that this group will also receive a portion of payout if Seer is ever sold. 

Team Phantom Equity Plan Rules

  • Chosen by Wil based on his set of criteria including tenacity, profit impacts (above and beyond their role), and culture impacts
  • New candidates for the pool will be evaluated on an annual basis
  • Must be an employee on payment date

Team Phantom Equity Annual Bonus Payout

Same deal as the Profit Share Plan, Bonuses will be paid twice a year. 

That means Seer’s Net Income will be calculated:

  • June 30 – Projected
  • December 31 – Trued up to end of year net income

Once the calculations are complete, the payout schedule is:

  • July 31 – 50% of projected bonus
  • 02/15 – Annual true up based on end of year net income

Phantom Equity Holders receive “shares” of the company

As discussed in the beginning, Phantom Equity is a form of ownership that provides each member the financial benefits of owning shares without all the headaches of actually owning the share units.

The shares are determined by Wil, his leadership team, and his financial advisors.

Phantom Equity Holders get bonused on Net Income after Reserve and Profit Share is paid out, based on their % ownership against Net Income

As these individuals now hold a piece ownership in the company, they will receive a percent of the company’s annual net income based on their ownership percentage.

If Seer is ever sold, shareholders would receive the proceeds from their shares

Based on the amount of shares each person holds, the Phantom Equity Holders would be treated as owners of the company. 

So they would receive their corresponding payout from the proceeds of a sale.


Phantom Equity Is Confusing

But Wil and his team spent countless hours trying to figure out what it is and how it worked so he could deploy it to his team.

And then he made you a couple videos for y’all so you wouldn’t have to start from scratch!

4 Minutes: Phantom Equity Basics – Part 1

9 Minutes: Phantom Equity Part II – Talking to employees about valuations


If the Company Does Well, We All Do Well

Wil has spent years trying to figure out the “Seer” way to bonus the team with many trials and errors

At the heart of the system he wanted to build is just this: “if the company does well, we all do well.” That is truly the simple message behind the hours, time, and money that has been poured into making this distribution of wealth a reality since Wil hit his “Enough.”

Interested in what else Seer has to offer team members? See what we’re all about.


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