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Why Employees Don’t Deserve More Salary (Employee vs. Partner)

September 9, 2008 |

Good, responsible small business owners tend to want to share the whealth and success with their contractors and employees: maybe much more than the contractors and employees deserve.  At least that is what I have observed.

At a particular point in time I was having an extremely profitable moment in my practice.  An ex subordinate, who I care a lot for, once told me: “I have worked with many small business owners, and none of them understand that their subordinates will never put the same amount of effort that they do, because they do not care as much for the business: they have other things that make them happy”.  That was an enlightening moment!  I felt I had been so dumb for so many months!  Subordinates should not be given an equal share (not even a share based on their level of effort, under most circumstances).   Partners may receive an equal share (based on their level of effort): but a partner is someone who shares the dream, the responsibility, the rewards and the risk. If you happen to have a subordinate that acts like a partner, then you probably want to steer him/her into that direction rather than the comfortable, but inconvenient situation of subordinate (at least for his/her level of effort).

That point was an epifany moment!  I was no longer surprised at the fact companies where willing to pay such a high premium for my services.  They where paying something fair:  I was just comparing it to what an employee deserves (the one that doesn’t share the dream, vision, responsibility, rewards, and risks).

One question still remains for me… when do I consider someone a partner vs. a subordinate.  It is not so clear.  First of all, people partner to several degrees, but I tend to simplify it in terms of percentage in the partnership (both of the share of profit and potential loss):

  • How much could be lost- remember that labor is an asset, and if the client doesn’t pay, someone who provided loss may or may not loose its value.  Partners tend to loose the value of their labor, while employees don’t.
  • Company or personal goodwill - is the potential partner increasing your firm’s goodwill?  Enhancing it with his/hers?  Risking it with behavior that is not what the client is used to receiving?
  • Level of commitment - Is the person willing to go the extra mile to salvage the opportunity when a situation arises?

Good things is that partnerships can last for one engagement, or for years.  I prefer the temporary one rather than the permanent one.  It grants more flexibility to enter in as many partnerships as needed with as many entities, without trying to make everyone agree.

What other criteria do you use to differentiate between a partner and an employee?

What about mixed agreements?  Comissions?  Bonuses? All of these try to make an employee into a partner.  When used judiciously they can be a great advantage.  Most of the time I have seen the employee become disgrunted if he gets less than 50% of the expected bonus, and the employer uncomfortable with giving more than 125% of the expected bonus.  Doesn’t sound like a real partnership in either direction, and I do not believe most companies employ them in a productive way.

These bonuses, however, work better when tied to something measurable.  Dollars sold, billable hours, money saved vs. last year.  They tend to be less effective when meassured against group performance, or company earnings, in my experience.


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