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I would like to know roughly how the payments are done if the company was started by two developers and me, owner.

Let's say, I give them 10 % each, thats 20 % of the company's profit product. How should the calculations should be done? For example, a company makes a revenue 10.000 USD in one month and has no expenses. 2.000 USD goes for developers (1000 USD each).

What about when expenses starts up? Fuel, telephone bills.. etc. So if we make revenue 10.000 USD in another month and expenses are - 2.000 USD, then and we have 8.000 USD. Then 8.000 USD - 20% (developers 1.600 USD) = 6.400 USD total, and 1.600 USD (8.000 USD - 6.400 USD) goes for developers. That is 800 USD each developer.

My main question is how to calculate compensation in fair way, for me and for them? Because as more expenses I can make, the lower I pay them.

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2 Answers

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Maybe you could offer them the following: I pay you 10% of monthly revenue or 20% of monthly net income, whichever is greater. This way you don't hurt yourself and you provide fair remuneration to programmers. Both you and programmers will be interested in the best cash flow for your company then.

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Another thing what is very important, if lets say they deliver the final good product, but this product needs updating and further work to continue development. They are very good programmers, I would like to see them working later on after the release version. What important point the agreement should have? I don't want to run into the situation where they sit and do nothing after release version is out to the market, and for rest of the life while company exists, they just wait for their 20%. – John Oct 26 '11 at 14:56
To add to the earlier point, it may be possible to add a life-time max (either in months or dollars or both) on how much they can earn. That way you don't get into perpetually giving them 20% even if they don't work after the 1st release. If you want them to stick around, you might indicate that helping with the 2dn release increases their life-time max by X months / Y dollars. And so on. This might help, but I don't know if programmers will be willing to accept such an approach. After a few of such steps, you may want to make them co-founders. – Vasiliy Oct 27 '11 at 2:31
I think the best would be to offer for developers to have an agreement that they have 14% (two programmers) of software and when we start making X money per month, we pay 14% from profit or revenue (depends what is agreeded). However, I want to include that they need to stick around for at least 5 years for updates etc to receive 20%, otherwise if they leave, I would like to drop % to lower number. Would that sound fair or too confusing ? – John Oct 27 '11 at 13:29
I don't think it sounds confusing (at least to me). However, the agreement will depend on what the programmers deem to be fair. If they think it's fair, you've got a deal. If not, you may need to renegotiate. – Vasiliy Oct 27 '11 at 19:10
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Because as more expenses I can make, the lower I pay them.

Give them shares in the business. Point is that cost structure changes are matter of company management and you will never be able to see a way that can not be gamed.

Fair?

  • Give them lowe % but on revenue, not on profit.
  • Give them real shares, not profit rights, so they have a say in the company (albeit useless with 80% in your hands).
  • Pay them cash. Money. Not promises.
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