Revenue Sharing for a development team

Question

I lead a team of 4 developers (me included). We develop bespoke financial applications so it is seldom that we sell the same product twice. Our boss has just come to me with a suggestion that we implement some kind of revenue sharing. This is not Incentive Pay, but a bonus that goes to the whole team for getting a project completed and shipped.

The idea is that the team will take a percentage of net. So if a project sells for $30,000 and the explicit expenses are $10,000, the dev team will have $2,000 to divvy up as I see fit. When I say explicit expenses I am excluding project management, secretary who organised flights, bloke who brought us coffee etc.

The three opinions on splitting up the money we have come across are.

Even Split Even split across 4 team members. i.e. Each of us gets $500.

Salary Weighted Split The money is portioned up with regards to our salary. So the most junior dev will get the least and I will get the most. (Surprisingly this is the option I'm least keen for)

Performance Weighted Split As an example, we split the money up 5 ways, and each developer takes a portion. The remaining portion will be split up amongst the guys who actually did the work in a manner that they agree to.

Right now I'm tending towards the even split.

I don't like the salary weighted split because I feel that I shouldn't get more just because I've been there longer.

I am ambivalent on the performance weighted split because the guys doing maintenance coding (thereby allowing the others to go do new projected) will be disadvantaged. Everyone will want to work on the big project which brings in a lot of money. This comes too close to incentive pay for my liking.

Another issue is if a new developer joins the team, how long until you bring him into the bonus scheme? From day 1? Only when he works on his first release to customer project? Judgment call by me and the other team members when we see him becoming productive and saving us time / work?

Just to be clear, we are well compensated as is and are all very happy in our job. I have been put in the unusual situation where my boss wants to give us more money in a way that he can justify to his board of directors.

Answer 1

Money a lot of times (especially in the U.S.) is a huge bone of contention, and is seen as a status as to how valuable of an employee a person is.

I am of the opinion that everyone should be treated equally when it comes to bonuses. If you are splitting it up due to performance, you should really ask yourself, why do you have under performers on your team.

If you don't split it equally, politics come involved and you have to start justifying paying someone more for their work and be able to explain it to the other members of the team. You probably won't ever actually have this conversation with them, but eventually they'll find out who is getting more and wonder why. Really the conversation you're going to have with them over this is why they shouldn't quit and you're going to have some way of convincing them that they are a valuable member. Assuming the person leaving isn't the one with the largest bonus, it's going to be hard to do so, because you didn't pay that person as much as someone else. In this case, your actions spoke for you, which clearly said "I don't appreciate you as much as someone else."

Here's another thought. Don't give out the bonuses. Blow it on something fun. Don't make the completing project about getting more money as that can lead to problems. Use the bonus to improve the team cohesiveness (movies, dinners, parties, t-shirts etc.) Most programmers don't do their job, because they get paid to. Most programmers do it, because this is what they like to do. Money for these types of people isn't a huge incentive. Using the money to show that you appreciate the work they do can go a lot further. Most people work at Google or MS because of the environment, not because of they pay.

Answer 2

Are you sure you're not trying to motivate people to do the job they're already paid for? I don't make to take a leap of faith but it seems a little unclear to me.

Revenue Sharing is generally about sharing the results from going beyond the call of duty, to maximize revenue. So, if there is additional revenue (or profit) in the business due due to excellence as a team, there's something to share. I think it's fair to say that a poor performing team likely wouldn't have as much revenue sharing available.

Some consideration points:

• What is your formula? Minimizing effort, and maximizing deliverables would be my guess. If you can't measure it (performance), you can't see if it's happening (revenue and profit to share).

• What are your costs? Time. Finding the sweet spot of not under, or over investing your teams extremely valuable time.

Based on the two being one way to look at this, if a project is profitable based on what it makes you, minus what it costs (however you measure it), maximizing the profit without sacrificing quality at all steps could be a measure of seeing how much more (on average) revenue is being generated than before, etc.

If what you are paid is a fixed fee, and what you want to minimize is the number of hours, as a team, a revenue sharing model could be tied to how few hours (and bugs x days after launch) the project can be kept to.

As for feeling guilty, get over it. Stars are paid to lead, train, learn faster and build better -- in other words perform. Should all the players on a sports team get the same salary and bonus structure? Would you accept the same salary as your entire team, regardless of who did more or less?

Revenue Sharing is sometimes tied to your salary structure. Makes it easy and egalitarian. Hit the measuring points, and it kicks in. New members of the team are often there to learn and work their way up and are able to enjoy Revenue sharing -- at their salary level.

Business is not a democracy or a theology, it is a meritocracy. If you have more merit than others, it needs to show and let itself serve as a motivating aspiration.

We are hired to generate more value than what we are paid. If we treat our development efforts from the perspective of entrepreneur and an owner of the business, would we get different results than if we were developers working inside a corporate structure?

It's greatly applaudable that your boss wants to do this in a meaningful and sustainable way. Bosses like that come up once in a lifetime if you're lucky and he seems to understand the connection between investing in people and their development and getting the same in return from them.

Answer 3

You should implement an even split. It is easier to calculate and removes any potential for envy and bad feelings.

The spirit of revenue sharing seems best expressed with this method.

Bonuses are separate.

Answer 4

Actually, money has been shown to be one of the least motivating factors for software developers. Sure, they're liable to get cranky and leave if you don't give them anything like what other companies do. But past that, they don't care that much.

If you have money to spare, the best thing to do with it is give everyone offices with doors, the hottest rigs you can afford, the nicest chairs available, and two large monitors. Phones w/ caller ID and off-switches on the ringers, free sodas, etc. Show them you respect and value what they do. That message will never get across if you are treating them the same as the lobby receptionist.

Answer 5

Personally, figure out how the crab-boats do it with their "half-share", "full-share" math. A new guy working on your project should get a part of the bonus, moreso if he busts his ass, but if he's "new", he's slowing everyone else down, and shouldn't necessarily get a full-share.

Maybe you as captain decide when it's time to give a guy a full-share, or maybe the whole team votes on it. But weighting it by salary? I'd agree with you, I wouldn't do that. Blowing it on a junket is an even worse idea, people are dying for money in this economy. Maybe you buy Aeron chairs or sofa's for your workspace, to help facilitate better working, and bigger bonuses?

Answer 6

The number one, absolutely top, thing you have to avoid is any perception of subjectivity and unfairness. If people start wondering why they're not getting as much money as another team member, the team is going to be under a great deal of stress, and you're better off without the bonus. Giving developers money is not a bad thing, but it has the potential to go toxic real fast.

I'd recommend a straight split, as being the least likely to engender bad feelings. As far as new people go, have a set policy that all your current people can live with, leading to a full share in at most one usual product cycle.

Spending part of it on a party of some sort is a possibility, but you need to be careful that you're not excluding one or more people consistently. People like different sorts of parties, and have different constraints. On the other hand, it may be the best way to spend small amounts of money, and it's always nice to have a "we shipped!" party.

Spending on productivity is going to be touchy. After all, if buying dual monitors and the like pays off in productivity, and the developers don't already have them, that sends a message that the company doesn't care about the developers getting things done.

Answer 7

Even split is the easiest and perhaps the best. Anything else will result in competition and hard feelings. I like competition between teams, but not in a team.

If someone is not pulling their weight, that is a separate issue and should be address outside of the bonus.