Developing a Profit Sharing Plan

December 6th, 2007 La Encantada, Peru

Secantada: Developing a Profit Sharing Plan

I have spent the past few meetings with the mango farmers discussing the different possibilities for sharing profits. Today I think we can up with something that will work pretty well. Right now there aren´t many profits to be distributed because we are reinvesting a high percentage in the growth of the business. Therefore, we need a system that will reward those who are working hard now with future profits yet remains flexible to the addition of future participants. We decided to distribute profits according to a system using the number of hours worked as the base. Rather than distribute the profits according to a monthly hour log we elected to distribute them according to an overall hours worked long. This prevents unfair distribution due to cyclical monthly profits. Instead, each worker receives the percentage of profits equal to the percentage of hours he has worked compared to all hours worked overall. Below is an explanation:

Lets say Secantada has a net profit of $1000 for the month. Assuming they choose to reinvest 90% of the profits this month, in order to promote rapid growth. The remaining $100 will be split among the members. Assume that over all the months group has worked 100 hours total. Pedro has worked 20 of the 100 hours or 20%. Juan has worked 10 hours or 10%. Therefore, Pedro would receive $20 while Juan receives $10.

This encourages participants to continue work during hard times rather than just during the good times. It is also fair to those who have initially taken the risk and invested their time before the project became super profitable. Yet this system allows for new participants to join in the future, although at first they will earn a significantly less percentage of profits. But as long as a new participant continues to work the percentages will balance out over the long run. He could eventually even earn more than an original member.