I am a big fan of profit sharing. We use a percentage of our profit for bonuses to all the employees. Bonuses are based on each person’s effectiveness in the recent quarter, not salary.

The goal is to align everyone’s interests and it works. Everyone here acts like an owner, watching expenses and trying to maximize profit.

We do bonuses every quarter so our profitability is always fresh in everyone’s minds. A yearly bonus can be easily forgotten for about ten months out of the year.

In many ways profit sharing is better than stock options. In a private company, stock options are worthless until the company goes public or is bought out. If that doesn’t happen quickly then those magic beans are gradually forgotten in the back of a desk drawer.

In a public company, stock options are super sexy as the stock rises. But when the stock price falls below your option price it is worthless and morale crashes. Your team is at the mercy of randomly fluctuating markets.

Figuring out bonuses each quarter is my favorite part of my job. I love to see people rewarded for hard work.