Ins and Outs of Profit Sharing


As we step into the financial year of 2022, we are pleased to announce that we will be sharing a portion of our annual profits with you, like the previous year.

This initiative has the purpose of allowing employees to feel a sense of ownership toward the company. We also hope this will motivate you to strive for even greater success in the future.

Our Profit Sharing scheme is already listed in Employment benefits, and in this blog post, we will discuss the nitty-gritty of this process and how we will compute the shares for the employees.

Why did we opt for Profit Sharing?

Profit-Sharing plans are considered a type of employee benefit by the Internal Revenue Service. In the US, profit-sharing plans are often supplemented with Employee Stock Ownership Plans (ESOPs) and more.

At this point, it makes more sense to compare the profit-sharing model to the traditional model. In the traditional model, an employee is paid a fixed salary, whereas, under the profit-sharing model, an employee is compensated annually based on the company’s performance. This is because, at Saeloun, we believe that employee contribution is directly proportional to the profits of the company.

We began Profit Sharing in Q1 2021 after a lot of discussions and research. The main idea behind this program is to bestow our team with-

  • An increased sense of ownership.
  • Upscale their career growth trajectory
  • Instill the philosophy of stocks/equity into our Consulting business
  • Our company’s success is equivalent to your success!

What is the distributing amount?

Our Net Profit after deduction is INR 6.5 Crore(~ $900K USD) for the financial year ending March 2022. We distribute 25% of these profits among our employees.

Profit Vs Bonus

In this competitive world, our company has been doing well in terms of revenue. Therefore, as a token of our appreciation for our employees, we love sharing surplus revenue. Under this model, both the company and the employee will incur their own taxes, however, in the case of the company, the revenue share bonus will be paid with respect to pre-company tax. (According to the Indian law, the company will maintain its profit margins wrt pre-revenue share)

Who are eligible?

Employees who have joined the company before 30th September 2021 are eligible for this Profit Sharing program. 25 people were eligible on the team this year!

How are the profits calculated and distributed among employees?

The process of Profit-Sharing is based on the net profit of the company. The percentage of profit-sharing is not fixed, and increases or decreases depending on the performance of the company. We mainly compute the dividend based on the duration of the employees’ association with the company. There are other factors, as well that determine the distribution. They are -

  • Impact someone had on respective projects
  • Company/Team involvements
  • Duration of work

We avoid using % of an employee’s salary as much as possible to be more equitable in the distribution.

Comparison with the employees’ salaries

When adjusted to yearly salary (post 2022 increments), this turned out to be within the range of 15-40% on average.

Employees’ Responses to the Profit Sharing Program

When our accounts and HR team conducted a small survey and discussion round with the employees eligible for this program and the amount distributions, we received an overwhelming response from most of our employees.

The feedback was mostly positive and all our employees were “happy with the dividend shares” they received as it matched their expectations.

We switched to video calls for all employees so we could have a better and more transparent discussion. And it seems to have been working well, with employees sharing immediate feedback or improvements.
In future I would like to better understand, how to improve on this feedback cycle related to distributions and ways we can improvise this process.

What does the future hold?

The future is bright for our company. We generally try to reserve up to 6 months of salary runway in our cash flow to avoid any surprises. The remaining 10% of the funds from profits go towards these reserves.

In 2021, we have already witnessed a growth of 200%+ in terms of revenue. Our base profit margins were around 40%(ideally we should be at 60%), with Annual Profits jumping to 3.25 times from the previous year :-)

We under way in the process of hiring and training apprentices and developers this year and are expanding our team to accommodate the growth. We are still hiring Ruby and React developers. Our hiring drives are already featured in leading publications like Business Insider, The Print, and many more.

Over the next 5 years, our company will be looking to expand its operations by creating new products and bringing in new talent to tackle new challenges.

Summary

We hope this post was useful to you and answered all your questions on our Profit Sharing Model. Anything we can learn from you? Send in your thoughts to vipul@saeloun.com!

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