Seems fair except maybe for the part where compensation takes living expenses into consideration.
If an employee decides to live somewhere cheap and it works out well, then they should see the benefits of this decision. If it means the employer must make certain sacrifices to accomodate this (telecommuting issues), then the employee should bear some extra cost to cover that, but it shouldn't be related to his living expenses.
If an employee chooses to live in Manhattan so they feel plugged in or w/e then they're responsible for covering their exorbitant rent.
Only if the employer demands they live somewhere specific should living expenses be taken into consideration.
Note that this is just the bonus. The salary is not dependent on local living expenses, but on average income for similar work in the area (plus a little bit).
I see no more insanity in basing a bonus on cost of living than in basing a salary on market rate. They're both outside the direct control of either party and lack any fundamental relationship to the properties of the particular company.
Balsamiq is a fairly unusual business and Peldi has grown something pretty extraordinary. This is a highly profitable business that has made a conscious decision to be great on its own terms, not on the terms that a Silicon Valley venture capital firm might impose on the business.
If you want some more background, go and watch this video of the talk Peldi gave at Business of Software last year. There is also a transcript you can speed read if you don't have an hour to spare.
I've never worked at a startup that was consistent about giving out it's bonuses. Usually they did some variation of the "making our numbers" policy usually in place at larger corporations. As a startup, you hardly ever make your numbers. So I've come to discount bonuses altogether (along with worthless stock options) when negotiating my salary. Now that I'm at a bigger company, having a consistent bonus every year is quite nice. There are tradeoffs to be made though...
The impact of seniority in the profit sharing program is way too big, in my opinion. I don't even exactly understand what seniority has to do with it, and I'm a (very?) senior developer, working professionally for more than 10 years.
Isn't it an incentive for working less as you become a "dinosaur" in the company? I mean, we can't make the time stop - this is actually an automatically increasing prize, regardless of your performance or any other thing whatsoever, and I'm a little uncomfortable with automatic prizes.
Besides, seniority is already reflected in the salary. Additional prizes should be a direct consequence of productivity, which again, have nothing to do with seniority.
In general, I'm very much in agreement with Peldi's ideas and admire the openness he cultivates but I just don't get this one.
I don't even exactly understand what seniority has to do with it, and I'm a (very?) senior developer, working professionally for more than 10 years.
The seniority portion is based on time working for the company, not on time as a developer in general.
Isn't it an incentive for working less as you become a "dinosaur" in the company?
Presumably there are other checks on that, like performance reviews. If my performance gradually degraded year after year, I'd expect to be talked to about that, and fired if I didn't improve.
Besides, seniority is already reflected in the salary.
Sorta -- they base salaries on average where you live for a similar job + a little bit. That's a different kind of seniority than the bonus depends on.
I question how "fair" a bonus structure really can be. At my last company bonuses were entirely random, and weren't always fair: I received several bonuses (that I do believe I deserved), but there were many others who should have been recognized as well on different occasions who weren't.
The bonus here is sort of a macro performance level. Everyone gets to share in the profits of the company when the company does well, and they share somewhat proportionally based on how long they've been with the company. Assuming the company is doing a good job of making sure everyone is performing well and not allowing people to slack off, it's a reflection of your loyalty to the company. And for a startup, it's also maybe a reflection of the amount of risk you took on (employee #1 took on loads, employee #75 took on much less) when you joined.
Then again, maybe I'm just jealous; I've never worked for a company with a profit-sharing plan, but would like to. It feels much more equitable than the traditional stock-option route most companies go for. Though the upside is that for stock options, you just need to stick around until they vest, while with profit sharing you need to stick around until the company is profitable, and you only get payouts while you're still there. Pros and cons to everything, I guess.
I'm not questioning the profit-sharing, that's a great incentive (the best IMO) and I'm actually working in a company with that incentive. I'm questioning automatic prizes.
Bonuses are incentives, and they only work if they make you work differently that you would if there wasn't any. That's not what happens with seniority.
Maybe the incentive is not to work better but just to retain the seniors in the company. But retention is a completely different problem altogether. Bonuses tied to profits may not be the best way to retain people if you have a bad year (no profits). I think competitive salaries are a much better incentive for keeping people in the company (better pass the message that you want them to work with you, regardless of how well the company's done on that year).
And sure, performance reviews can be unfair but that's not a reason for dismissing them - just keep improving the way you conduct performance reviews. At a certain point, you'll have to have some kind of peer review, better start now. There are many companies where these reviews actually work well.
The problem is that almost everyone who had bad experiences with performance reviews in previous companies (which seems to be the case of peldi) tend to dismiss them instead of improving them.
Mmm, very good point. Perhaps (as you suggest) the bonus structure isn't intended as an incentive to work harder/better.
But it does seem like a poor method to retain people... I feel like my bonus growing over time wouldn't be much of a motivator to stay if the work wasn't keeping me super interested, and my base salary wasn't growing enough to remain competitive. Maybe that's just a bias of mine, though, not to consider the bonus as a top criterion? Dunno.
Maybe the theory behind it, is that the more senior your get, the more valuable you will be to other organizations. As a way to keep you around, your comp. goes up.
That's the theory as commonly applied to CEOs and university administrators, but if cash is the only thing keeping a employee from jumping ship I'm not sure that should be rewarded.
I think cash helps build up an insulation layer to outside offers and poaching.
If you pay / compensate above market, and the employee knows this, they're less likely to 'just take a look' at the competition or other employers offers, as they know it'll be difficult to even make an straight transfer.
I don't know that I'd even call it a golden handcuffs style 'benefit' - it's just greasing down a small, possible source of friction for an otherwise happy employee.
I think cash helps build up an insulation layer to outside offers and poaching.
Does it, though? Is this based on anything more than gut feelings?
My impression is that it just raises the offer level of poaching, and no company is going to overpay to the degree that it becomes prohibitive, except for positions where secrecy and/or thieves' honor is paramount (see: finance).
Suppose Google were to implement the same policy. Their quarterly profits last quarter were $2.5B, and had approximately 30,000 employees. So 10% of $2.5B split among 30k employees means an average quarterly bonus of $8,300, or a yearly bonus of $33k.
This seems like a pretty good bonus, particularly since if Google used salary.com to define their salaries, an incoming software engineer in the Bay Area would make $70k.
On day one you would only be getting 2.5% not 10% so 8,250$. However, if you have 4x the average senority then you would get 33k x (.75 x 4 + .25) = 107k which would be much harder to walk away from.
If an employee decides to live somewhere cheap and it works out well, then they should see the benefits of this decision. If it means the employer must make certain sacrifices to accomodate this (telecommuting issues), then the employee should bear some extra cost to cover that, but it shouldn't be related to his living expenses.
If an employee chooses to live in Manhattan so they feel plugged in or w/e then they're responsible for covering their exorbitant rent.
Only if the employer demands they live somewhere specific should living expenses be taken into consideration.