We have been developing mobile apps and games for 7 years now. We're in Iran and started by accepting mobile projects from UK as an agency and then switched to our own startup projects. 3 years ago we've released a social mobile game and it was a huge success compared to mobile market size in Iran. It had a ROI in two month and is generating revenue supporting a team of 14 to develop the game and another game project. Startup ecosystem is very trendy in Iran and almost every university tech graduate thinks of having his own startup. On the other hand, Since almost every employee in my company has an idea of how much revenue the product generates, I recently received a few feedbacks from a few key employees that they are not satisfied working on a project that doesn't have long term benefits for them. (i.e. I hear that, assuming we release the second product and company revenue doubles, what would it have for me as an employee?). I've studied that the only incentive for employee to stay in a company is not monetary. So we've created a friendly environment and flat structure for the work in which every one has a potential of huge impact on the product design and development. But we also would like to fix the monetary side. I searched a lot about employee incentive and profit sharing plans. I see the practical way companies do the profit sharing is through Employee stock options. Once considering this path, I faced a problem which tech company stocks in Iran are not liquid as they are in Silicon Valley, also a standard technology company valuation service doesn't exist here. It's very common to invest-in or purchase an startup there which is not the case here. So having stock options would not work practically for the employees they would not be able to sell it. We then thought on an income sharing plan which I describe as follows: 1. we defined a fixed percentage for every employee based on their role and experience (say 0.5% for an advanced employee) 2. They would be able to increase their percentage by going through a predefined improvement task list. 3. Those employees who select this plan, will receive (a lower hourly wage + company_income x percentage) monthly 4. New employees get lower percentages base on the current income/ current stage of the company In such a plan if all employees choose to switch to profit sharing plan, we would give around 12% of company income to the employees, monthly. They would be assured to receive it and it would not have depend on our expense decisions. Since I did find a similar case on the net (income sharing) I fear the plan might have major problems that I don't see. I would be glad to have your advice and perspective on this.

It always comes down to taxes. What is your goal? Save on taxes? if it is then profit sharing is a must. Making the company employee owned gives a huge tax break, while giving out equity forces to you and your employees to submit that as assets at the end of each year, while corporate team has submit an evaluation form to the IRS for any adjustments, issues, or stock hikes or drops.
Equity keeps employees for longer, but so do 'bonuses' so answer should be based off tax benefits.

Answered 5 years ago

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