Let's begin by defining what I mean by open earnings:
Transparent public record of what individuals earn, and the responsibilities and metrics that will define their pay scale. An open ceiling on value added and corresponding pay is the key to getting the best effort from each team member.
Historically only sales positions could be open earnings. And this is the way big affiliate companies or other sales teams work. Each person earns a small percentage of each sale.
Internet Community Hubs Mimick Sales Splits
Several Internet community sites and marketplaces have mimicked open earnings.
- Squidoo is a publishing site which shares 50% of affiliate revenue with each copywriter
- Apple uses iTunes and the App Store as a marketplace and charges 30% of each sale
- Amazon has an affiliate program which shares 2-10% of each sale
- Cafe Press, and Lulu will create goods to sell and perform collection and shipping for virtual storefronts
For the most part these web entities provide a value proposition as exchanges. By leveraging their brand and an existing market, they boost sales and share a small split of the revenue. The web business collects payments, ships or electronically sends goods, and then processes payments to the affiliate. The entire system is well documented, clear to each participant and the earning ceiling is open (depending on supply). Partnerships are terminated if circumspect practices are employed to get sales. This is done to protect a brand, and the trust it has built up.
Existing Methods of Applying Open Earnings to Organizations
An employee stock ownership plan (ESOP) or stock options can be used to reward exemplary effort. But there are some problems both in allocation and the utilization of this motivation method. Options are usually limited to heirarchical "elite employees" or executives in business organizations, which is subjective (hiring, advancement) and are usually private. Employees can only access ESOP or options value if they leave a company or the business is liquidated (sold to other companies). In bad circumstances the common stock of ESOP/options is paid out after all preferred stockholders.
- Always keep ESOP transparent. Include vesting and allow employees to liquidate at early intervals by taking a loss on estimated current value.
- Design organizational teams so that they are directly measured in terms of revenue, and profit generated. Allow immediate profit to be shared among team members that have executed predefined tasks with a high or open earnings ceiling. Delay longer term payouts with vested payments (i.e. 20% per year over 5 years)
- Research and Development can be the longest horizon for teams to reap a reward. Define measurable goals like new user adoption, technical capabailities, and pay immediate and vested rewards based on estimated future revenue/profits. This is the most challenging business area to reward with direct performance due to the horizons for metrics.
Acquisitions can also fall into this category. Define measured performance goals for acquisitions and reward the groups that make the deals happen
- Modularize business units whenever possible. The "one company does it all theory" won't stand the test of time. Immediately inefficiency will be produced in unexposed business areas. Focus on key areas of strength and leadership and allow other areas of a business to compete in the marketplace
- Spin Off Completely Independent Business Units. Create an independent entity to modularize it's functionality and open that business' opportunities to competitors. It will drive your other business areas forward, and generate much more revenue if done with the right business areas (Google doesn't want to commoditize search and ad matching). But strategic business units that function on a tight budget, can succeed by commoditizing complimentary business areas. The leaders and members of these units are best motivated by open earnings, much like startups