Dividend Vs Bonuses

chakra_viewh

[ Edit: Recategorizing. Not that controversial, and a very good question as one grows ]

What should the company do after it becomes profitable after a few years in loss. All the founders have taken equal pay cuts. Lets say it has $100 to distribute in various ways at the end of the year.

1. Dividends to founders/owners,

2. Salary increments/Bonus based on company performance

When the dividends are declared, minority shareholders are not happy. Large/Financial investors want to take out their money as dividends.

How would you break up this $100?

Sameer

I hope to be doing this in the coming year - so here's a stab at it.

1. Keep something aside - the good times wont last forever. Also, plan business investments out of this.

2. Two separate buckets for operational profit-sharing, and long term participation. The latter grows over time, and I'd keep equity accrual in that bucket as well as the company becomes more valuable, and the participation in the growth increases.

So - for the first profitable year - 25-30% towards a cash corpus, and split the rest between an operational share and dividends 70-30. Folks in the latter bucket are likely to have operational shares as well. Over time, the dividends would increase.

// btw. salary bonuses etc would be expenses, and so you'd have the $100 post that. is my understanding correct?

chakra_viewh

$100 figure came up after all the plans of reinvestment, cash for worst time etc. Its all about dividend vs bonus/salary.

70-30 dividend to operational share makes sense.

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