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What is Alternative Compensation?
At PartnerHere we talk a lot about alternative compensation. What do we mean by Alternative Compensation? Let’s first talk about normal compensation, which for most people means cash, and by cash I mean, cash or cash equivalents like checks or credit cards or a paycheck. In most business settings, you do a job, you get paid in cash or cash equivalents. If you buy something, you pay with cash or cash equivalents. You might use Venmo or CashApp or Paypal, but those are all still cash.
When we use the term Alternative Compensation, we mean something other than cash or cash equivalents. That doesn’t mean that it can’t turn into cash over time but it’s not cash right now.
Let’s start with the most obvious alternative, partnership. We called our site PartnerHere because the original idea was that it would be a place to find a partner or multiple partners to help you start your business. If you and your partner both start the business together and you agree to a 50-50 split, then you each do 50% of the work and you each get 50% of the profits when the business is profitable. Now, that’s cash but it’s not immediate cash. You have to work and make the business profitable first.
If there are three partners, you might each get 33.33% or you might decide on a different split depending on who is doing what work. For example, one of you might work full-time in the business and the other two might be part-time. In that case, you might consider the full-time person a 50% partner and the other two would own 25% each. Every company and every partnership is different. You might also have different agreements about WHEN you can take cash out of the business. You might decide to keep the cash in the business until you reach a certain level of profitability or cash flow.
Equity simply means shares in the company. It’s a bit more formal than a partnership because you have to form a corporation. Once you do, the corporation issues shares of stock or shares of ownership and those shares can be owned in any configuration you can imagine. PartnerHere issued 10 million shares when we started and we have many owners with each of us having a different number of shares based on our roles and contributions. The reason for creating shares is so you can easily keep track of a variety of ownership percentages and those shares can be bought and sold at market price.
One of the benefits of shares is that you can add something called vesting. Vesting means that you have to perform certain actions or be with the company for a certain length of time before you are an actual owner. For example, at PartnerHere, we require three years of service to vest. That way if someone comes and goes quickly, they don’t get to retain their ownership. The people who stay with the company and help it grow are rewarded for doing so.
The important thing you should realize is that as soon as you decide to start a company, you have something of value to trade for labor or products or services. You have shares in a partnership or shares in the company to offer in exchange. What they are actually worth is really up to you and potential partners or teammates to decide. It often depends on their belief in your story about the potential of the company to generate revenue, profits and wealth over time. Welcome to entrepreneurship.
Barter simply means trading one thing for another. One PartnerHere member might have a car that they are not using and be willing to trade it for office space to start their company. One person may be good at accounting and another is good at marketing. They can barter their services to one another without cash changing hands. Please note that these transactions may be subject to taxes depending on what you barter and what state you are in. In most cases, if you are trading business services, when you trade, it is a wash, meaning that you recognize income for the things you sold but have an offsetting expense for the thing you bought so there are no tax consequences. Check with your accountant to be sure. Barter is how business got started in the first place. Back in the caveman days, a good hunter was able to get things he needed from others in the tribe or with other tribes by trading the food he killed. Money is certainly an easier and more fungible mechanism of exchange than a liver or a hind quarter but barter often works when neither party has cash. Most everyone has too much of something and too little of something else. Barter can get the job done when money is scarce.
I LOVE FREE! Most people love FREE. Free means no money needed! Why would someone give you something for free? Maybe because they just want to get rid of it. Maybe because they are being generous. Maybe because they want to become known in the community. Maybe because they want your email or other information in exchange so they can market to you and perhaps sell you something later. Whatever the reason, there will be lots of people giving things away on PartnerHere. We hope you take full advantage of the opportunities.
Often in business, you are more than happy to pay for a product or service IF IT WORKS…but not if it doesn’t. For example, you might be willing to pay a high fee for a lead or referral if that lead or referral turns into business for you. Lead generation companies generally get paid on how many leads they generate, not on the quality or success of those leads. That is a big risk for a new or struggling company. But, if you only have to pay for the leads that turn into actual business for you, that’s a success fee.
Another use case might be that you are willing to pay someone to promote an event for you and pay them for every person who actually shows up. In other words, a success fee is based on outcomes, not inputs. It doesn’t matter that they worked tirelessly for weeks, if they didn’t produce the result, they don’t get paid. They only get paid for success, thus the name.
Now, obviously, these arrangements are not for everyone…but if you are really good at what you do, success fees can be a great way to make a deal happen when the other party doesn’t have much cash. I have taken deals in the past where I get a percentage of the increase in profits I produce for a company. If you have confidence in yourself and your abilities, you can earn more with success fees because if you get results, you can charge more for your services and businesses are happy to pay you because they’ve already gotten the results.
Commissions are usually calculated as a percentage of revenue or a flat fee per sale or per new customer or participant enrolled or whatever you are paying the commission earner to do. Most sales positions are salary plus commission, but straight commission means no salary or base compensation. You get paid only when you produce a result. Like success fees, if you are good at what you do, commissions can make you rich. I know many salespeople who make more than the CEO of the company they work for, because they produce huge revenues. They are worth every penny to the company. Please note that there are strict rules for paying commissions in some states so be sure to check so that you are in compliance. For example, in California, there are rules on when commission must be paid relative to the date of the sale being made. I believe the law requires that you pay the commission in the same week the revenue was earned.
Commissions are a special kind of success fee and usually are ongoing over months or years. Success fees are typically tied to a project but don’t have to be. The distinctions can get into semantics so just be sure that your deal is in writing and that you are both clear on what has to happen to trigger a payment and when those payments will be made. One other note, sometimes companies get upset when they have to pay huge commission checks or success fees. Never be greedy about these deals, if it was a fair deal on the small end, it is probably even fairer on the high end. One company I worked for had to pay me a $250,000 success fee. The CEO was bitching because the number was so high. He put seven million dollars in profit into his personal pocket! Yes, it was a good deal for me, but it was an even better deal for him! When these deals work, you should be smiling all the way to the bank.
A project fee just means a mini contract. In other words, you agree to perform certain duties for a given period of time or to deliver certain goods or services over a specific period of time. When the project is completed and all of the deliverables have been delivered, you get paid. You could be paid in stock, partnership shares, barter or even cash. The point of a project fee is that the project must be completed first. The business can often afford to pay after the project is completed because they can then collect money from one or more customers for the completed project and then they have cash to pay you.
This idea was born because I often find myself wanting to use or have access to an asset but I don’t have the money or the space for the asset or because I only want to use it occasionally. For example, I wanted to buy a high-speed scanner but I only need it for a week a year. I could rent it but a weekly rental is 50% of the cost of the unit. I’d love to share one with 5 or 10 other businesses where we all have access to it but we only use it occasionally. Another example might be where someone uses a delivery van during the week but it sits idle all weekend. A startup catering company might want that van for the weekend when people are having parties but not need it during the week. The two businesses could share that asset and the cost and both benefit. Office space is another great use case. Maybe you only need a conference room when you are meeting with clients but a company has one that is rarely used. Why not share? You can pay for your share using any of the alternative compensation methods above or you could pay in cash for your share.
Lease or Rent
Imagine you have an expensive camera that you don’t use often but would be willing to rent it to someone (competent and trustworthy) for the day. Perhaps they have a project and need it for the next couple of months and would lease it for that time period. Imagine that you are going on vacation for a month and you are willing to lease your office while you are gone to a startup team to get going. Rentals are generally for things whereas leases are generally for real estate. Rentals are usually shorter term and leases are longer term. That’s why we use both terms on PartnerHere but they really are the same thing.
Maybe you are willing to do a deal and get paid later. Maybe you’ll charge more or charge interest for waiting for your money. Maybe you won’t charge a premium because you are just happy to have the work and get paid later when the business can afford it. Maybe you are making so much money in your current job that you don’t want to get paid this year because you’ll have to pay higher taxes. Whatever the reason, deferring compensation is a great way to get a deal done now.
Buy or Cash
In a concession to reality, we realize that sometimes cash is the only way to get your deal done, so we provide the option for people to offer to buy something or to request cash for something. We are not anti-cash, but there are a million places on the web to buy things or to pay cash. If you have pockets full of cash, you probably don’t need PartnerHere, but sometimes cash is faster or easier so we’ve made it an option.
Before we get to my favorite checkbox on the site, let me ask for your help. You are all incredibly creative, savvy entrepreneurs. If we need more checkboxes for other types of compensation, let us know at email@example.com. If you have done other kinds of creative deals, tell us about them and maybe we’ll feature you in a video or interview you about your deal. We Do Deals Differently. We are always excited to learn more about what is being done out there.
Let’s Get Creative
I’ve made thousands of deals in my life and every deal is different. Terms are different, who does the work can change, amounts are different, timing is different, fees and profits are different depending on who needs what to succeed. The point of this option…and I have to tell you that this checkbox is my absolute favorite feature of PartnerHere, is to use it to get a deal done that you can’t get done any other way. There are a million ways to get a deal done and when you are willing to be creative to get it done, you can do a lot more deals. That’s why we say that at PartnerHere we DO DEALS DIFFERENTLY. We use alternative compensation. If you are eager to get your business off the ground or are willing to get creative with your compensation to get things happening, hit that Let’s Get Creative checkbox and make the magic happen!