Small business - cheapskate owners

Question

I work for a small business and the owners are pretty cheap. Every year we get bonus and a small raise, but compared to the profit they makes, it's pretty negligible considering the fact that there are only 4 employees to distribute the profit among. But compared to my prior jobs working for bigger firms with several thousands of employees, I get a better chunk here obviously.

This year we had several clients upgrade to a later version of our application and thereby there has to be at least a million dollar revenue/profit for our firm. In that case, should I ask for a better bonus/raise? In the past, we received like 10k(bonus + raise) per employee when the owners clearly made well above half a million dollars profit.

I am not sure how bonuses/raises are calculated especially for small businesses. 10k is a good amount, but for a small business making million in profit, is it reasonable to ask for more?

Adding some details to clarify certain issues raised by the comments.

It's an IT firm which has been in the market for over 25 years. The current owners bought the company a little over 10 years or so. The firm was already successful and a leading competitor on the market for our specific domain. So, the current owners didn't do any leg work to set up/establish the firm to begin with. They did cut down the resources after acquiring to increase profit instead of investing more in the firm. Their idea was always to invest less and make profit somehow out of it. We(the employees) comes up with new ideas for functionalities/features that can be added to the application to make it more marketable as the owners are more like sales people who don't have much clue about the application and just worried about making profit.

So, the answer is yes, we do play a significant role in making the product more marketable, do demos for clients and so on.

Answer 1

While we can't speak for your particular small business there's some general things to consider.

Yes their "reward" is bigger in the sense that they might be making 500k profit vs your 10k but their risk is also proportionately greater.

In many cases small businesses are basically built out of the founders/owners pockets - they might be reaping the rewards now of putting in a huge amount of time, effort, money and stress to get it off the ground in the first place.

It's also worth considering that while the company is experiencing a good patch now it could easily go the other way in the future - you and the other employees could probably just go to another firm relatively easily, it's not quite that easy for the owners. Equally it could have been through some fallow periods in the past - and in many cases if there's no money coming in to a small business for a period the money ends up coming from the owners.

I would expect that their roles encompass a greater scope of responsibility than yours - do you just code what they tell you to or are you originating business ideas? making sales? managing the accounts?

If you want a bigger share of the profits you need to take a bigger share of the risk - have you considered talking to the owners about taking a share in the company? Alternatively you could always start your own business and take all the profits.

Answer 2

I am not sure how bonuses/raises are calculated especially for small businesses. 10k is a good amount, but for a small business making million in profit, is it reasonable to ask for more?

You can always ask the owners how they calculate your regular raises and bonuses and then go from there.

Just remember, if you are going to ask for more money you need a better reason than "the company is making huge profits". You need to demonstrate how your work directly led to those huge profits. If your work was only partly or indirectly responsible, then you should not expect to receive a large increase.

Furthermore, be glad that you're receiving regular raises and bonuses. Many companies ( even large ones ) do not provide this to their employees, regardless of profits.

Answer 3

I see no sense in your question that there is any difference between revenue and profit. There is, of course, and it's hundreds of thousands of dollars. The salaries of your 4 developers. The salaries of the management, the "overheads" who persuaded a pile of clients to upgrade to the latest version. It's possible they don't even take salaries some years (I know there were years I didn't) so they may get quite large salaries when the money is there for it. And those sales calls might involve plane tickets, hotel rooms, admission to conferences for networking, and plenty of other costs. Then there are little things like office rent, keeping everyone in computers, internet, etc. If they had to take out loans in lean years to pay you (another thing I've done) then they need to pay those back with interest. Heck, they have to pay an accountant to do the taxes and probably a payroll firm to get all of you paid, too. All of this adds up in a way that's quite hard to imagine when you just come in every morning, sit at a desk, and do great work. Which is all to say that a million in revenue is not a million in profit - there might not even be much profit at all.

But you don't know all those numbers. And that's fine. It's not part of your role to know what all the company spends on things. It's not part of your role to persuade the clients the upgrade is worth the cost, nor to decide what the cost is. It's not your role to go without money when things are tight. You come in, you do great work, and you get paid. And you're happy about that.

Now it may be that you in fact were not happy about that. That you have felt underpaid for some time, but just assumed there mustn't be the money to pay you fairly. So now you want to know what's going on and why you aren't being paid more. Well if that's the case, then you're welcome to start that conversation. But not with "I know you can afford it you have a million dollars in revenue so you have a million dollars in profit" -- because that's inaccurate and irrelevant. If you truly feel you're worth more than you're paid, now is a great time to ask about that, since they should be able to find the money to pay you if they need to. But if they could get someone just like you for the same money or less, then no matter how much is in the bank, they won't be giving you a big raise just because you feel like they can afford it. You might find How should I properly approach my boss if I'm feeling underpaid? to be useful reading.

Answer 4

If you are working in an employee-owned business, or in a cooperative, or where you are offered profit sharing, it is perfectly reasonable to inquire as to why profits have gone up but your cut has not. In the majority of businesses as they are run today, however, these benefits are not the norm. Most businesses are run with a strict split between "owners" - who get paid in profits - and "employees", who get paid according to the prevailing market for labor (and where increased corporate profits rarely result in increased wages - more commonly wages are held down to increase profits further).

In an owner vs employee environment, your best bet at getting more is to make the case to the owners showing them how your efforts - individually or along with the team - directly led to their increased success, along with the case for how this was not merely you doing the minimum of what is expected of an employee in your position.

Alternatively, you can go along - preferably with other people - to point out how dedicated the group is to the success, but that the unusually high success of the business doesn't really provide anything better for the employees than merely moderate success would. You would try to make the case for performance-based incentive systems, such as basically requesting something like profit-sharing to be considered.

It is generally far easier to get individual raises/promotions for good performance than it is to take collective action to develop a new incentive system, as that is often seen as the job of the owners - but some people are open to such out of the box thinking.

I will warn you though that anything that sounds like "you are getting more money so you can afford to give us more" tends to be taken...poorly. Anger, defensiveness, and dismissal are not rare reactions, but some people are kinder and gentler than others. I've never heard of it really going over well, especially in a strict owner vs employee designed company. After all, if they felt strongly about sharing success with employees they would have already offered a profit-sharing/equity style of system anyway.

Still, many people react to honest and reasonable discontent among workers seeing their involvements bearing fruit but not getting much benefit in a kind way. At the same time, you should remember that the owners probably think - that if the business wasn't doing so well the employees would not be coming to them and volunteering to have no bonus or take a pay cut. Such activities are often given or offered by employees in small businesses, but often without sufficient communication or coordination, and it is now the general rule that businesses are run as strictly transactional affairs where no added loyalty is offered and only occasionally expected.

Partnerships of any kind tend to require more inputs, more risk, and more dedication - aka skin in the game - than at positions where you are expected to show up, do what is asked of you, then go home, and where you are free to more or less leave at any time that suits you if things aren't working out quite right. You should be clear with yourself just how willing you are to take up those kinds of aspects before you go to the owners.

Answer 5

In your question, you mentioned that you can show value in the sense of claiming that the success of the company is due to your contributions. Even if we take that as a fact at face value, it's important to point out that contributing to a profit is not typically enough, on it's own, to justify reaping the rewards of that profit.

While contribution to profit is a good way to judge value, it's not typically a direct link to compensation. Determining who shares in the profit is not just about "I did X and the company made money" - especially in a smaller company, where there's often a lot of risk involved. Profit sharing is often also very much about who is taking on the risk of loss if things go poorly. In order to reap the profit, you have to be taking on the risk, too. Not just producing good work.

Hence, companies typically separate compensation for assumption of risk versus compensation for completing work tasks. Assumption of risk is usually expressed as ownership, while compensation for completing work is expressed as receiving a salary or bonus.

So - if you want direct share in the profits of your company, rather than asking for a raise, you should consider if there's a way to participate in ownership.