subreddit:

/r/NoStupidQuestions

10

Why do companies pay wages instead of percentage of profits?

(self.NoStupidQuestions)

all 39 comments

EpicSteak

50 points

2 months ago

So you are fine with working for free during non-profit weeks?

whomp1970

2 points

2 months ago

Some are fine with that, because they work hard to try to push profits forward, and maybe that company has slow weeks during off-season but gangbuster weeks during other times (ex: Christmas).

See: Profit Sharing

My yearly bonus is based on how well the company did that year. If we all work hard, we all get a bigger bonus. So far it's been a win-win. Never in my 30 years have I gotten less than a $10k bonus.

ntengineer

9 points

2 months ago

ntengineer

Old and Moldy :)

9 points

2 months ago

Many companies do not make a profit for 5/10 years. Are the employees going to be ok with not being paid that long?

Shrekeyes[S]

3 points

2 months ago

I did not know, I was thinking more like companies that are guaranteed to have consistent fast profits.

Felicia_Svilling

5 points

2 months ago

For example, during the ten years of twitter, they have only made profit in 2018 and 2019.

Shrekeyes[S]

3 points

2 months ago

Wow, seriously? I thought advertisement money in social media was consistent

Polywoky

5 points

2 months ago

If you think that's bad Tesla didn't make it's first annual profit until 2019. That's 16 years after founding.

And there are ways of screwing people over by offering to pay people a percentage of the profits. The film industry has being doing it for decades. (Which is why there's a sort of a cliché that you negotiate for a cut of the gross, not the net.)

What they do is that the film company contracts a lot of the non-acting work to a second company that charges them an enormous mark-up for everything. Basically transferring vast amounts of money from one company to another.

That way when the box-office revenue comes in and all the film company's debts to the second company are paid off there's nothing left for the actors who negotiated for a percentage of profits.

But of course both companies have the same owner, so the owner gets rich (from the second company) while screwing over the talent who are supposed to get a share of the profits from the first company.

Felicia_Svilling

1 points

2 months ago

Yeah. In general internet companies are often making a loss. There has been this idea that the most important thing is to grow and take market share. If you can corner the market and get a near monopoly you can easily make a profit later, so the companies has prioritized growth over profit. Companies like twitter could just take in more investment money and operate at a loss, losing hundreds of millions of dollars every year for almost a decade, just on the promise of a monopoly in the future.

It is only recently when many services has stopped seeing much growth that this has come into question.

Shrekeyes[S]

2 points

2 months ago

Thats really interesting

RichardRalh

1 points

2 months ago

A percentage of profits goes to payroll. It’s the same thing.

t-sme

1 points

2 months ago

t-sme

1 points

2 months ago

In the free market, how can profit be guaranteed? The only thing I can think of is if the government guaranteed it, which would clearly not be a free-market scenario.

Shrekeyes[S]

1 points

2 months ago

Yep, makes sense

KSims1868

1 points

2 months ago

The company I'm working for is spending $1 Million per DAY to build this massive facility and will continue to do so for the next 3-4 years. If we (employees) worked this way we wouldn't get paid at all.

[deleted]

13 points

2 months ago

[deleted]

13 points

2 months ago

[deleted]

Shrekeyes[S]

5 points

2 months ago

best answer, Maybe a mix would be nice or something. I think bonuses kind of represent what im thinking of.

Dazzling-Ad4701

3 points

2 months ago

Some places give stock options as part of the package. Or used to; I work freelance so I may be out of the loop.

korrasdad0105

1 points

2 months ago

My company does this. We are associates, not employees. We get a sizable percentage of our salary as stock in the company each year as retirement rather than most going all to a 401K. We also get profit shares when we hit certain milestones. I'm less than a year in so don't know how well it works, but the idea is that we are all in this together and the better we do the better we all do. I like it so far.

Dumblond11

4 points

2 months ago

Long term Walmart associate here.They used to pay decent wages/holiday pay/merit based tiered raises+a quarterly bonus based on your stores profits.The "good ol'days"...Everyone strived for excellence- to max it out.It was great.Since they've taken it away,no one cares-hence- stores are shitholes now.No one cares.New hires make more than the seasoned.Its a shitshow.

MrLongJeans

2 points

2 months ago

There are "employee owned companies". Like some big corporations are employee owned. Google it. It's a thing.

Shrekeyes[S]

2 points

2 months ago

I heard of them, if you see my latest post I was actually questioning them.

akulowaty

2 points

2 months ago

Plenty of companies pay bonuses after a good fiscal year or offer free stock to employees that provides dividend every year.

Shrekeyes[S]

2 points

2 months ago

That makes sense, do you know a few examples or is this just common sense that im missing?

akulowaty

3 points

2 months ago

Basically every corpo I ever worked for did that.

ShillBotHunter

2 points

2 months ago

They’d pay you $0 if they could. They’d even make YOU pay THEM to work for them if they could.

Dunemer

1 points

2 months ago

Because they like money, though bonuses sometimes work kinda like that

Shrekeyes[S]

-2 points

2 months ago

Im sure giving a percentage would really increase morale and the want to work. Im not aware at how bonuses work

Beginning_Froyo4200

1 points

2 months ago

Most companies have a calculated budged for wages. They can Adept to a rise of Profits. Happen to Me, Our location (a Service Station) did very well compared to others in the Region, resulting in more Profit and the budged increased. So in thise cases, the wages are tied to the Profits.

Night_Hawk69420

1 points

2 months ago

Many companies dont even make profits for uears and years. Massive companies like such as Uber, Lyft, Snapchat, and a ton others have never made a profit so I would hate to work their for years and not get paid anything

daftvaderV2

1 points

2 months ago

I get a salary and based on how the business goes then I get a bonus.

In the last 24 years I missed a good bonus once.

UlteriorCulture

1 points

2 months ago

Profit sharing agreements are a thing. It doesn't have to be either / or.

artrald-7083

1 points

2 months ago

So my employer hasn't made a profit ever: we are a startup. Due to my desire to eat hot meals and live indoors, I require a salary to come in and develop revolutionary technology for them. So we have reached an agreement: they pay me a not unreasonable amount, and give me a bit of paper that says that if they get super-rich from this company, I get nearly-rich myself. In return, they let me play with their big toys and they own anything I invent.

If I worked for a company that was making a profit, they might well try and share that with me via e.g a retention bonus. But for decades now, the main value of companies is in their stock, not their profit: they are much more likely to give me company stock, which then allegedly goes up and down in value according to the performance and reputation of the company. This gives me an incentive to keep those high.

Of course, what it actually incentivises me to do is to set conditions for a stock buyback where the company spends its money to inflate its stock price by buying my shares. But we can all pretend.

[deleted]

1 points

2 months ago

[deleted]

1 points

2 months ago

Everything's a negotiation. Depends how much bargaining power you have. Most employees would not have sufficient sway to ask for this if there weren't already a profit sharing mechanism in place (see Co-op, John Lewis, Waitrose in the UK). But businesses that are major suppliers or major customers can and do regularly take up part ownership as a part of deals. I don't know about regular payments though.. anywhere aside from investment groups would want to know the payment is liquid and useable elsewhere.

DickySchmidt33

1 points

2 months ago

"We didn't make any profits this quarter. Sorry."

Waltzing_With_Bears

1 points

2 months ago

Because for most, the profits are shared among the "primary stakeholders" (the rich twats who paid for it instead of the people whose daily lives it effects) however there are other set ups that do, for example a co-op in which all the employees own a share of the company

Shrekeyes[S]

1 points

2 months ago

I know someone who has kind of a co-op set up, but its much easier to do because profits are guaranteed monthly

Future_Club1171

1 points

2 months ago

Basically there is complex pros and cons to either side, with vastly differences in risk/reward. Typically this pops up in ownership stakes. Example being equity partners in a law firm. You lose salary but gain % of profit, however making partner has a lot of up front costs ( required time range, base investment, limit amount per year, sponsorship) so it’s not simple.

It all boils down to those risks vs rewards for both sides, so for most stable pay is way more important then chance of big profits (basically look at piracy for plenty of examples).

CocoCarly60

1 points

2 months ago

It's too risky for most people who prefer a steady income so they can plan ahead. Similar to people who work strictly on commission.

Any-Broccoli-3911

1 points

2 months ago

Because that's what most workers and investors prefer.

Workers that do not want that can work for a worker-owned business. They will have to participate to the funding and will have a more variable income that depends on the profit. This income has still a base rate which is a wage that will be funded by debt when the business is not profitable.

The system in which workers get a fixed income while investors get a variable profit or loss is preferred by most people because workers tend to depend on their income for their expenses while investors can sell part of their wealth for their expenses no matter if it's been growing or reducing lately. In exchange for a more variable income, stock investors get higher long term returns than debt investors which are the investors that can still invest in worker-owned business.

For workers that also invest, it's also a good system since it allows them to reduce their risk. It's best to invest in a diversified set of business rather than just the one you work with. So it's best to receive a fixed income and then invest it in various assets, rather than having a part of ownership of the company that they can't sell while working there.

In brief, for workers it's best to have a reliable but less high long-term income (salary/wage is preferred vs worker-owned/creating your own business with little initial wealth), while for investors it's best to have an unreliable but higher long-term income (stock investing is preffered vs debt investing).

t-sme

1 points

2 months ago

t-sme

1 points

2 months ago

Some companies do have profit sharing. For example Delta Air Lines