Revenue Sharing: Can an adjustment in compensation structure increase wages and profitability?

August 20, 2015 7:39 AM Comment(s) By Gabriel

A few months ago, we began an experiment to see if we could.  Previously, we paid our commercial delivery cyclists as one normally does -- using an hourly rate.  We felt pretty good about our wages -- they ranged from $10.10 to over $15 / hour (for work on government contracts) -- but we weren't satisfied with where we stood.  Our small business segment was falling a little bit short of its profitability targets for the company, and while paying "above average" wages in an industry with a bad rap is good, it wasn't meeting our longer term aspirations.  I wasn't unhappy with where we stood today, but we weren't nearly where I wanted to be.

After discussing it with our commercial cyclists, I decided to take a cue from a really inspiring book (with a bit of an unfortunate title), The Great Game of Business, which is about an engine remanufacturing plant that transformed its operations, business performance, and company culture using a system called "open book management."  Starting out as a 30 day test, we decided to start offering our commercial delivery cyclists an option to earn a percentage of the revenue they delivered instead of an hourly wage.  In addition, rather than showing up and working the schedule we assigned them, they would get a dedicated set of clients that they alone would service, and would get to set their own schedules according to their clients' needs.

The hourly wage still stood as the floor, so nobody would ever earn less than they would have otherwise.  Furthermore, these cyclists were still our employees, meaning that they would be eligible for health benefits if they worked over 30 hours per week, would accrue PTO or sick leave, would be covered by our worker's comp policy, wouldn't have to pay self employment tax, and would receive all the other legal protections that employees have but independent contractors don't.  This wasn't about shifting risk from the company to employees, since the company was still on the hook if things went sour and people ended up working really long schedules.  It was, however, about making sure that the the way we paid people reflected our goal of creating a company culture where everybody's working towards the same goals.

The experiment turned out to be a big success, both for the company, our employees, and our customers.  That's not to say everything worked perfectly, but bottom line, out of the paychecks we've written under the new compensation structure, over 75% included bonus revenue-sharing payments, meaning that in 3 out of 4 paychecks, employees were earning more than the would have otherwise.  In 1 out of 4 paychecks, they were earning the same they would have otherwise.  Paradoxically, at the same time that our employees began earning more, our profitability increased a bit -- cycling expenses as a percentage of our cost decreased.  And because our customers now had a dedicated cyclist, their satisfaction went up as well, and delivery-related service errors with commercial customers nearly disappeared.  It was almost like magic -- the company got more, people got more, and our customers got more.  Everybody was better off.

This model has gone so well that, we recently began testing a similar revenue-sharing compensation structure with our consumer delivery cyclists.  While there are a few big differences between delivering to consumer clients and commercial ones, the early results are positive -- so far, 2/3rds of the paychecks we've written under the experiment have included revenue-sharing payments.

Gabriel Mandujano founded Wash Cycle Laundry in 2010 to create upwardly mobile jobs for vulnerable adults. 

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