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Is This Normal?

I've already read Joel's arguments against incentive pay. But I'm looking to join a local firm, not start one. They explained their policy to me. Seems a bit odd, so I figured I'd ask around. What do y'all think of this?

You get like a percentage of whatever revenue you bill. Oh, yeah... it's a consulting company. So if you bill over a certain amount of hrs each month, they'll give you percent of that revenue you made over and obove that set amount. What I don't understand is that they say that if they have to give money back to the client sometime after they've already paid my bonus, they'll take the difference out of my next one.

I get confused just writing it. Is this kind of policy pretty standard? The guy I talked to said so. I'm new, and I don't want to get taken advantage of. Thx.

Tuesday, April 9, 2002

No. I don't think so. Giving you a share of your billings over a certain amount, and recouping (from you) billings below a certain amount is not common as far as I have seen. In fact, I've never seen these specific things.

In consulting/contracting, I've done 1099 and W-2, both directly and through 3d party. Haven't done corp-to-corp yet.
So far, I've seen getting OT + salary as a W-2 employee of a consulting firm, but that was seriously abused (by the company) after a couple of years. Plus, it was used as an excuse for paying dirt-cheap wages, giving miserly increases (if any), and for underscoping projects guaranteeing that nearly everything was a deathmarch. I worked about 3000 hours my last year there, and wasn't alone, and mgmt routinely ignored us telling them that something could not reasonably be fit into the resource/time box they drew. So, if you see this situation, dig deeper and be prepared to run like hell; either right away, or shortly, depending on how badly you need the gig right now.

I've seen getting actuals (i.e. work 50 hrs, bill 50, get paid for 50), though sometimes with a "not to exceed" understanding. That situation was a long project with a very good client, paying top dollar, so getting paid for, say 60 even if you were doing 70 or 80 every once in a while was still really good money, and it was an agreement we struck to preserve the fixed project budget.

F.J. Weiland
Tuesday, April 9, 2002

I have never seen this situation. However, a few thing spring to mind.

1. Getting a bonus for billable hours above and beyond a certain level is kinda kewl.

2. Giving money back to the client and then docking you for it is _not_ kewl. I have never herd of a time when money is given back to the customer. This is _piled_ with issues. Who caused the money to go back to the customer ? If it is not your fault, then why are you being docked ? Im sure this _rule_ is there to make all players responsible for the outcome, but jeesh, what if it can not be helped ?

3. Why not make it easier on everyone by looking at the end profit and giving you a percentage of that. This way, no one gets docked, which would cetainly Pi** me off.

I would not feel comfortable entering into this situation. There are too many _gotchas_.

Good luck with whatever you decide.

James Ladd
Tuesday, April 9, 2002

Oh, forgot - I'm not counting any sort of profit sharing situation as you might see in a partnership, for example, nor am I counting any situation where if business was particularly bad at the end of the year, folks had to take a pay cut.

I'm assuming you're talking about a base salary + bonus situation and are referring to recouping from not only bonus but also base?

I've known people whose base pay was "fixed", but whose bonus might go up and down on a quarterly basis, though they weren't consulting/contracting.  YMMV.

F.J. Weiland
Tuesday, April 9, 2002

Never heard of such a thing.

Did they give you some concrete ideas of what sort of $'s they are handing back and paying out as bonuses?

I would try and negotiate a simple pay structure, without the bonuses and without the payback stuff. Wait until you've been there a few months and see what you think then.

Tuesday, April 9, 2002

I'd be very wary of any consulting firm that regularly discusses giving money back to a client.  I've been in consulting with large & small firms for quite a while and now on my own for even longer, and I've very rarely seen a contract go that bad.  And I've never seen the loss passed onto the employees in that form.

If it's happened enough for a company to make it part of their employee payment policy, it seems to me it's a sign of bigger problems than the occasional unhappy client.

If it were me, I'd be looking elsewhere.  But it's you looking for a job, so how bad do you need it?

And btw, the bonus as a percentage of revenue (whether for a particular contract or year-end for the co.) is fairly common in many of the smaller firms.

Marty Eichelman
Tuesday, April 9, 2002

Who is 'they' that decide when/if money goes back to
the client?  If 'they' means all of the partners (including
you), then I wouldn't see a problem with it.  But I wouldn't
want any part of a situation where I didn't have a say in
the contract... Too many variables in SW.  Sounds like they
are going to make you a partner though rather than an
employee?  Employees are not responsible for losses. 
Owners are.  Either way you go, make sure you have a
good attorney review the contracts.

Tuesday, April 9, 2002

Yeah it's a base and bonus. So I get a salary all the time and if I bill over 100 hours in a month I get a bonus that's a percentage of whatever's over 100. They said giving money back to clients didn't happen very often and it's usually not very much but that they wanted to make sure I knew about it. i'd just be a developer/consultant not a partner or anything. Thx again.

Tuesday, April 9, 2002

This incentive scheme seems to be based upon those of the more dubious network marketing (pyramid) schemes rather than a professional services organisation.

It is incenting you to book as many hours as possible to the paying customer. The payback clause will have been added after the company realised that some employees have been booking hours simply to get a bigger paycheck (surprise, surprise).

Perhaps you should ask yourself whether you really want to work for a company whose prime focus is maximising revenue (you didn't mention any incentives for quality of work or customer satisfaction) and couldn't even come up with a sensible reward system.

Peter WA Wood
Tuesday, April 9, 2002

Hmm. OK, base + bonus. Well FWIW, in *any* situation involving a bonus, make sure you're comfortable with: 1) the base, 2) the expected value over time of the bonus (i.e. magnitude and probability of getting it -- can be hard to assess ahead of time).

Companies can lure you in with lines about how "... yes, our salaries aren't necessarily what you could get elsewhere, but we make up for it by the great bonuses!"

That sort of situation can work out well, but can also end up being like many of the promises of options a lot of the recently dead startups became famous for.

Personally, I'd go for a base + bonus arrangement if:
1) I'd be comfortable living on the base alone, even if I never got the bonus. It's too easy to get your lifestyle hooked on having the bonus.
2) I really wanted to work there doing what the job was
3) I trusted the company leadership - a lot.
4) I was comfortable with the basis for determining bonuses

otherwise, if I still wanted to work there, I'd likely ask for a deal with a higher base and less (or even no) bonus. At the end of the day, you can only bank what you get - you can't do squat with what they've said you "might get if...".

YMMV, of course; my current family situation dictates a lower risk tolerance now than I had 20 years ago when I was single.

As others have advised here, be careful of any situation where you might end up personally paying the consequences for a bad situation you had no part in creating, or were unable to avoid. The previous comment about that regarding the software industry was extremely valid, IMO.

Best of luck to you.

F.J. Weiland
Tuesday, April 9, 2002

This looks exactly like insurance agents are paid. If your compensation rate per hour is not fixed and increases in proportion to total hours billed - yes, this is MLM and you can hire your own consultants to bill more hours than you would alone.


Roman Eremin
Wednesday, April 10, 2002

No, this is not normal. You're being asked to pay for mistakes you have no control over. Who decides when fees are returned; who decides the situations that could result in clients wanting fees returned?

In my experience, companies that offer this type of arrangement to non-sales staff are trying to exploit them. Typically the commission rates are far too low, for one thing. More importantly, they're always trying to squeeze the other party, including you.

Hugh Wells
Wednesday, April 10, 2002

If you work an hour, you should get paid in some way for that hour.  Now if they involve you in the analysis, design and development phase as a equal contributor then I would be open to a bonus structure.  But I would not if you will only be developing a another person's development plan.

Chris Woodruff
Wednesday, April 10, 2002

personally, and i seem to be pretty strange in this regard so maybe don't take too much notice, i find the idea of a bonus pretty insulting. do they

a) think i am incapable of doing the work they hire me for in the hours for which i am hired (either i: they hired the wrong man, or ii: the estimate for the work is wrong); and/or

b) think i am some kind of mercenary whose soul can be bought for a few $s more over the fistful they give as a salary?; and/or

c) i do not work hard enough

Wednesday, April 17, 2002

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