interviewer said if you get a raise, the workload will go up for the entire team

A reader writes:

Last week, I had my third interview for a position I’m very interested in and believe would be a great fit for my skill set. I thought the interview went well overall, but one comment the interviewer made about the team structure rubbed me the wrong way.

He essentially said that each team runs like “independent small businesses,” in which the team lead would act as the “business owner.” Each team has a revenue goal that needs to be met each month/quarter, and it’s each team member’s responsibility to pull their weight to get there. (Note: this is not a sales position.)

He explained that this structure gives teams more independence with how they choose to utilize resources — like if there’s software that would benefit the team, there’s less red tape to get it. However, with each expense, the team’s revenue goal goes up.

The way he described it, each team needs to have a certain profit at the end of the quarter. If they added expenses, they’d still need to produce that same profit, so their revenue goal would go up since their expenses increased.

An example he gave was that if the team needed premium Shutterstock accounts, they could choose to get it without needing to get the budget approved, but the team’s revenue goal would need go up since they choose to spend more money, and they’d still need to meet the same profit goals for the quarter. He then made the same comparison for team salary, so I assume it’s truly all expenses. This is a service-based industry, so essentially taking on more clients from sales or upselling current clients.

While I can see there are benefits to this, he also mentioned that hiring/salary decisions are tied to this as well — so if you hire a new team member, the revenue goal goes up based on their salary. However, he also mentioned that if a team member gets a raise, the revenue goal would go up for the entire team as well.

I may be wrong about this, but the idea of that made me uneasy at the problems this can stir up. For one, I feel like it could result in managers not fighting for or putting up employees for raises, as the managers are evaluated on their teams ability to meet revenue goals. Additionally, I also see the possibility of the person getting a deserved raise not having the capacity to take on more work (as raises usually come after demonstrated proof of taking on higher workloads), so that excess will fall on the team members not getting a raise.

In addition to Glassdoor reviews stating that while it’s a great company with great people, there is favoritism when it comes to compensation, this only adds to my gut feeling that this is a major red flag. I enjoy what I do, but at the end of the day, I work to make money, and I expect to be fairly compensated for my contributions as I move up in my career. This structure makes me feel like this may be difficult.

In your experience, is this a common practice? Do you see this as a red flag, or am I just misreading the situation? To me, it seems like its incentivizing increasing output while also keeping all costs (including labor) down. I’m considering withdrawing my candidacy due to these concerns, but I’d love your input on it before I jump to conclusions.

Wow, no. It’s clear what the benefits are to him as the employer, but it’s a terrible deal for the rest of you.

He makes the same profit regardless of business expenses, while your team shoulders the entire burden for raising the money for those business expenses.

And the advantage to you is … what? That you don’t need to deal with the red tape of having expenses approved? That’s an incredibly minor benefit. Any decently run company has a system set up to approve expenses that doesn’t involve major hardship. But even if you had to deal with an onerous maze of paperwork for expense approvals, this still would be an awful deal for you.

This guy is basically saying, “You can’t get a raise without increasing your workload and stress level or your coworkers’ workload and stress level, but in exchange I’m going to make it really easy for you to purchase pens!”

Worse, he’s also saying, “There’s no budget to purchase the basic equipment you need to do your job without increasing your your workload and stress level. If you want those pens, you’ll need to work more hours.”

Well-run businesses set budgets along with revenue goals. Well-run businesses don’t put the cost of routine expenses on their employees. And well-run businesses definitely don’t put the cost of routine business expenses on their employees and then tell them it’s a benefit. This is some real gall!

Run.

{ 315 comments… read them below }

  1. Countess Boochie Flagrante

    That’s honestly ridiculous, for all the reasons both you and Alison pointed out, OP! I would run, not walk, to an exit given this kind of a structure.

    1. Ignacio

      This is not so ridiculous as it sounds. I work in a consulting firm and we operate like this. It is actually a very transparent way of doing business because one understands why things are given or not, and gives the team ownership of their accomplishments.

      What Alison misses in the benefit of the structure is the independence and ownership it gives your team. Also, if you meet or surpass your goals, your team gets rewarded. If you miss them, you may not be punished if you explain why that happened (e.g., you invested in hiring people to win a contract but it did not go through), although you will run out of excuses if you do not turn your practice around. Finally, maybe you do not meet your income goals, but if you control your expenses, your bottom line may be good enough not to matter.

      Overall, one needs to check this to see if it is worth it.

      1. Bob

        Hmm. It depends on the size of the firm, but even so – people I know in consulting confirm that this structure results in many of the issues Alison identified – awful politics, infighting, lack of (real) collaboration, backstabbing etc etc.

        Lots of people working ridiculous hours and unpaid overtime because the partners told the clients they could do a project in X hours in order to win when in reality it costs X+1000 hours to achieve. And apparently the salary isnt really that great either.

        So while I can see that it appeals to a (niceh, niche) audience, I’m still with the commentariat – this works well for those at the top, sucks for pretty much everyone lower down.

        1. AnnaBananna

          Weeellll, it’s also the same business structure as franchised retail (inlcuding financial, my personal experience), which we know is horribly successful just about everywhere. It’s definitely a sink or swim scenario, but the benefit of even signing on, for the ‘team lead’ is that there are other benefits to their structure, like discounted product or whatnot. I have found that this works incredibly well for workers when their salary is attached to the sales, as they have skin in the game to make it happen.

          OP: “its incentivizing increasing output while also keeping all costs (including labor) down.” Uhm, you just described every single business’ goal, ever. Is this really what you meant? *scratching head*

          1. NerdyLibraryClerk

            Horribly successful for whom? Certainly not the employees, or retail wouldn’t routinely pay minimum wage and have high turnover.

          2. Joielle

            Incentivizing increased output while keeping costs down is ONE goal of a business, but any business you’d want to work for also has other goals – like employee morale and retention. You describe benefits in this structure for the team lead, but the only apparent “benefit” to workers is that they have to hustle or they don’t make money. That’s… not a benefit.

            1. Darren

              Well given that you have a profit target but they don’t care what your expenses are as long as you reach it you would as a team lead be able to offer significant bonuses to help with retention and morale if your team is exceeding said profit target.

              Which is a pretty good incentive for your people “if we double our revenue, I can give you a bonus of your salary again” and you’d still have extra money hanging around (to cover a bonus for yourself or hiring more people if you need it).

              Depends how much they embrace the “don’t care about your expenses as long as you make the profit target”

      2. Cobol

        The issue is it places the onus where it shouldn’t be. Period growth becomes the be-all end-all. One of the biggest benefits of big companies is the ability to share expenses across a big group, another is a person not involved in a group who can make tough decisions and be separated from the emotional part of the consequences.

        If Jessie earned a promotion over Chris in this system, Chris still has to work harder to make up the salary difference.

        1. Anax

          This focus on period growth also encourages ignoring “non-revenue-generating” areas – fields like IT and HR, which don’t directly bring in money, but… well, if every employee is working on a fifteen-year-old computer, or your website goes down on Black Friday, your bottom line will certainly suffer.

          That kind of shortsightedness is very common, and I can only imagine this policy would make matters worse.

          1. Anonomoose

            Hmmm, is there internal billing, I wonder? For example, if IT tank everyone’s computer with a “new update”, and then insist on charging them for a few hours work per PC in internally billable hours…

            If you wanted to hit targets beautifully, if internal billing is a thing, you give a random member of the team the big pay bump for the.month, in return for them doing all the overtime.

            1. AnnaBananna

              Oh I’m sure the overhead is managed at the home office. Maybe not finanically, but someone is managing something on their behalf, like IT. There has to be SOME benefit for the team lead to stick around instead of taking clients elsewhere. It sort of sounds like the team leads have authority over certain operational expense types.

            2. Anonomoose

              Better yet, doing a realllllly shoddy job in IT creates more billable hours! If you just say, yank the cables without blinking lights out in your patch cabinet, rather than checking if there’s a computer on the other end, well, that’s just an extra job!

              1. LQ

                We have an internal billing structure and I’ve been fighting with them on a piece where they get a percent on what we spend, but they control and oversee the spend. They don’t seem to understand, or worse they do, that this literally incentivizes them to run up the bill as much as they possibly can. We can’t leave so we are held hostage to their stupid rates and there is no reason for them to control cost, only reason for them to inflate them. They inflate cost they get more on the higher percent. They buy a 1.5m server instead of a .5m server they get more cash in hand for no more work. It’s infuriating.

                1. Just Elle

                  I feel like IT should get paid more the less they are needed (on service calls, anyway, not on CapEx). Because, yes, this is ridiculous.

                1. Anonomoose

                  I aspire in that direction. I’m the one who came up with a fake change management committee to avoid pointless website changes.

                  I’d argue, though, that if your structure favours the creation of bofhs over productive employees, that something has gone very wrong

          2. Kiki

            Yes! There are all sorts of departments in companies that don’t directly drive revenue, but are necessary for a thriving company. I’ve worked at a few companies who prioritized revenue-generating departments above all else and I’ve never seen it go well in the long-term. A company that only cares about the sales department will eventually be selling a bad product and you can only sustain that for so long. Or a company that neglects HR will eventually have some sort of scandal or horrific mistake that costs a lot of money. It’s just… bad business. But I always see these initiatives being lead by business folks!

            1. Just Elle

              Agreed. This is actually one of the main arguments I’ve seen made against taking companies public… stockholders value short term monetary growth over the long term investments that make for a healthier company but less return right now.

        2. Glitsy Gus

          That is my biggest question regarding this system. If Chris and Jessie are both up for a new, higher tier position, and Jessie gets it… how do you convince Chris to work harder to justify Jessie’s new paycheck? You’re basically adding insult to injury saying not only didn’t you get it, but now you have a higher target to meet in order to cover someone else’s success.

          Unless there is something missing here that I don’t see it just looks to me like a recipe for really high turnover.

          1. AnnaBananna

            They’re likely is. I said up thread that they only times I have ever seen this done sustainably is when the staff’s salary is tied to sales. So every time they go over a % of profit, it’s funneled into a bonus structure for the staff. Otherwise, folks jump ship as soon as they have a better offer.

        3. consultinerd

          In consulting/professional services firms where this is a common business model, this actually does the opposite of incentivizing growth over everything else. If you have a fixed profitability goal, it encourages managers to be cautious about trying to grow faster than available work can justify. (Of course, this can raise other problems, like when managers are too hesitant to hire new people and instead overwork their existing staff to increase profits until people start quitting…)

          The notion that Jessie’s promotion negatively impacts Chris is also off the mark if people’s salaries are tied to the revenue they bring in. Jessie getting a promotion will come along with a higher billing rate for Jessie, meaning that Jessie is bringing in more money from clients that pays for her raise. Jessie now needs to work harder (or more efficiently, or produce higher quality work…) than Chris in order to justify her higher billing rate to clients.

          1. Sacred Ground

            But that isn’t what is described here. The hiring manager told OP that any increase in exp ness result in higher goals for the entire team and specifically used as an example one person’s raise means everyone has to meet a higher goal.

            1. Darren

              Well to be clear that the team has to meet a higher goal. This can be managed as either Jessie working more effectively (which she might already have done to justify the promotion anyway) or by other employees adding more value (which would start to demonstrate they could be promoted as well once the work they produce would cover the cost).

              The key about a scheme like this is it works best when you have the income target and increase/decrease expenses so you hit that target, which means holding some capacity for bonuses (which can be scaled based on performance).

        4. TardyTardis

          At old ExJob, it was apparently the responsibility of Benefits to make money (which led to some very exciting decisions up to the point the company was bought by someone else).

      3. Kathleen_A

        The only time I can see it working well is if each team is more or less equivalent – what I mean is, the teams may not be the same size or have the same budget, but each has the number of staff and the budget that are the right size for whatever their responsibilities are, and each team has the same ability to balance and affect revenue and costs.

        And how often will that be the case? I just don’t see it. Some departments are expenditure heavy, some are revenue heavy, some need lots of people in order to be effective (and more people = more expense), while some can do a lot of work with fewer people. How in the world can all of those things be balanced so that the system is fair?

        1. Kira

          This is an interesting perspective. I was imagining that the company in the letter has a bunch of teams that are essentially mirrors of each other (like Blue Team and Red Team) rather than functionally distinct (like HR and Customer Support).

          I’ve worked in a revenue generating role (fundraising) where I sometimes couldn’t get more resources to do my job because our buyers (donors) didn’t want to pay for revenue generating activity. And I’ve worked in revenue guzzling roles (we provide this service at a loss because without it we couldn’t close any sales).

          In the latter I especially saw the mentality other commenters have brought up of not investing in more efficient resources that would allow us to handle a higher load because management was worried that the profitability would just get worse. Eventually we decided that the benefits of providing a quality service more quickly (and hopefully getting a good reputation, which would improve sales) outweighed the near term decrease in profitability.

      4. LapisLazuli

        I feel like “ownership” is one of those buzzwords that most people over-use. To me, ownership is really about accountability and responsibility. You can “own” your accomplishments (and mistakes) without a financial risk to yourself or your team. In my estimation, it seems that the workers in this type of structure take on the most risk with very little in reward.

        This type of structure also seems like you have to essentially nickle & dime everybody. Do you want a raise so badly you’d have everyone work twice as hard for that? That’s not a normal or sustainable practice to me.

        1. Falling Diphthong

          I am trying to see the value of “ownership” and keep circling back to “People would be able to say ‘I work for a small, family-owned business.'” Rather than “ownership” = stock in the company.

        2. Darren

          Well if you’ve got carte-blanche for expenses as long as you hit the target your ownership is basically whatever profit you get over that you can do whatever you want with (bonuses for you and your staff, etc). Which is ownership, but it comes with all the risks of ownership (if you don’t make the target you are going to be in deep trouble).

      5. Czhorat

        The healthiest firms in my experience treat overhead as overhead and share it across cost-centers. If you want a new piece of software the firm orders it and it’s shared as needed – possibly with individual licenses being passed back and forth as needed if such a thing is allowed in the ToS.

        In addition to a lack of efficiency, this also discourages mutual support. The best organizations have a goal of success across the board, and people work towards that. If the goal is success for your smaller sub-group then you’ll work towards *that* and ignore the bigger picture.

      6. Countess Boochie Flagrante

        Also, if you meet or surpass your goals, your team gets rewarded. If you miss them, you may not be punished if you explain why that happened.

        That’s true of companies that don’t operate like this, too. I don’t see the benefit to punishing people for their coworkers’ promotions. It seems like that only creates a crabs-in-the-bucket mentality and stifles long-term innovation in anything that would help the business but not return an immediate profit (security improvements, equipment upgrades, employee development…).

      7. Magenta Sky

        One question: If your team *exceeds* it’s profit goal, does 100% of the extra profit go to the team? Because if it doesn’t, it’s a pretty crappy arrangement.

        1. Darren

          That’s how these things work, and if you’ve got carte blanche for expenses without need for any approval which seems to have included salary from the description then you can put that extra profit into the team via bonuses or salary bumps (I’d go with bonuses mostly until you hit higher numbers consistently).

          In fact I would always come in bang on the profit goal every year (you just have a buffer for bonus which goes from zero if you are running below target, about 20% if you are hitting the target, and more than that as you exceed it).

          1. Kira

            Interesting! I can’t stop imagining a scenario where you wanted to hire an extra person you might go to the team and say “I’d like a 5th person to help us get caught up and be able to take on more work. Would you rather I hire them, or increase all of your salaries by 1/5th?”

            How does that kind of thing play out? Or do these team typically not change size?

        1. Sacred Ground

          Yes. You want me to feel ownership? Give me stock or profit sharing. Anything else is BS.

          1. Darren

            But this seems like it does offer the potential for profit sharing. Salary (and by extension bonuses) are an expense. Given expenses require no approval or red tape of any kind (and you can do whatever you want with the money as a team lead as long as you hit the profit goal) you would easily be able to give incentives to your employees as profit share based on how much you exceed that goal. You’d always want to hit exactly the profit goal every year as there is no reason to exceed it.

      8. Antilles

        I think it really depends on how it’s set up though.
        1.) How long term are these goals? If I give out annual raises, the group’s profitability this quarter is going to decrease – someone doesn’t magically become 3% more efficient on January 1st. But long term, if you don’t do that, you’re going to be unable to keep good employees. Focusing just on this quarter’s metrics is penny-wise and pound-foolish. This is basically the same issue people have with Private Equity – you’re so concerned about getting short term gains that long-term items like training, R&D, etc fall by the wayside.
        2.) How do you handle different groups’ needs? It’s very common for one group to serve as a bit of a ‘loss leader’ for others – for example, in my industry, an inhouse materials laboratory is usually expected to barely break even…but you absolutely need to have one (even if it’s not profitable) because clients will only hire you if you can show that capability. you still want to have one because many large government contracts literally won’t even allow you to apply if you don’t have an in-house laboratory.
        3.) This seems like it could very easily result in infighting. I’m not sharing my projects with the Chocolate Teapot group because that’ll cut into my revenue; even if we’re fully loaded and the CT group is begging for work, I can’t help them out because it makes my year-end numbers look worse.
        And by the way, even if you disagree with my individual points, it’s worth noting that there’s a bunch of Glassdoor reviews citing favoritism as part of the compensation process. So even if it works for your company/industry, this company in particular doesn’t seem to be handling it well.

        1. Aspie AF

          #2 exactly. How do divisions that do not pull a profit, such as QA or Finance, factor in? What stops people from cutting corners and sacrificing quality for speed?

      9. Myrin

        There might be a language barrier here on my end – I’ll admit I didn’t 100% understand the letter, either – but I don’t get how that structure relates to independence and ownership at all.

        1. Falling Diphthong

          Native English speaker here, and I’m reading those as “ownership and independence, like when you’re a disruptive ninja actualizing.”

        2. Darren

          You own the budget for your team, and decide how you want to reach the profit target.
          You want to hire more people and aim for the revenue appropriate for that you are welcome to do so if you hit the target.
          You want to have expensive software to make your team more productive go ahead, it’s your team and target.

          Basically it’s like running your own business you have all the risks associated with that, but all the potential benefits (i.e. you exceed the target you can do what you want with the extra money since you can raise expenses in anyway you’d like including bonuses/salary bumps).

      10. JSPA

        It’s all the headaches and responsibilities of ownership, but with no actual equity. No thanks.

        Unless you’re coming from being self-employed, or on your way to being self employed, and prefer that, but your money ran out, or has not yet come through, so you’re marking time until you next set off on your own, and want to keep your “I’m the boss who answers to me” reflexes sharp.

        I also almost wonder if this was originally set up to make people into legal “contractors” and get the firm out of paying their share of benefits and taxes. Yuck.

      11. Marthooh

        Ignacio said: “…if you meet or surpass your goals, your team gets rewarded.”

        I didn’t see anything about a reward. If you go over budget, your revenue goal goes up, but if you surpass your revenue goal…. nothing happens.

        1. Darren

          Sure it does, if you surpass the goal you can drop back to it by paying out the excess as bonuses rewarding your team for their hard work.

      12. VictorianCowgirl

        Punishment?

        What, like a spanking?

        In the workplace, I don’t think the idea of punishment is appropriate, and I don’t think you’ve made your point here.

      13. Working Hypothesis

        Nothing in the description suggested that if you meet or surpass your goals at the company described, your team gets rewarded. All it indicated was that you had to meet your goals to avoid getting in trouble, and that the goals went up if you spent money on routine things like salaries and equipment. There was *zero* suggestion that salaries *would* go up if you surpassed the goals. I think it much more likely that the owners just pocket the extra, and everybody starts even at the beginning of the next quarter.

        1. Darren

          Sure it did:

          “The way he described it, each team needs to have a certain profit at the end of the quarter. If they added expenses, they’d still need to produce that same profit, so their revenue goal would go up since their expenses increased.”

          It then went on to describe some expenses such as software (stating no approval would be required it’d just raise the goal) as well as new hires, and salary raises implying that a similar no approval would be required, you’d just have a higher revenue goal.

          This implies if you have excess cash you can just give everyone a bonus with no need for approval as long as you end up at or over the target, hence the reward.

          Now it’s possible it doesn’t work that way here, but that’s what I’m seeing in the letter, and it IS the way that a system like this actually works and has buy-in.

          1. Massmatt

            That’s not the way I read the letter. It specifically says giving raises means higher expenses and thus higher revenue targets. I don’t think the manager gets excess profit above targets as a pile of money to keep or give out in bonuses.

            This company seems to want the employees to have the drawbacks of ownership with only a very minor benefit (being able to buy equipment etc independently).

  2. Quill

    Honestly I was wigged out by the time “Each team operates like an independent small business,” because it sounds like a recipe for infighting.

      1. Gatomon

        Yes, this seems like a way to walk into a team that’s either lacking resources (because they can’t cover the expense and meet goals) or is working incredible hours just to have resources. Sure there needs to be some justification for large expenditures, but I thought that’s what finance departments do?

        Plus what does a department like IT do, which is typically just a cost? Does it charge other departments for IT services? Or do they outsource everything to someone?

        I’m actually really curious about how this works.

        1. Anon for this, colleagues read here

          Possible that a service dept like IT would charge the other departments. For instance, we have a marketing and communications dept for our division; we are charged to use their services. It’s a recurring monthly expense. We have to pay it whether we use their services or not. If they have to go above and beyond what their staffing and resources allow (say, hiring an editor to work on a piece we need done), we pay for that on top of the monthly amount.

          The problems are: (1) that theoretically would work ok when not very many departments in our division use their services, but at some point the work requested will be more than they can provide. (2) their work is not very good quality; we actually spent additional money out of our budget to ensure some important marketing pieces were done correctly. (3) even when not many departments were using them, their service was terrible.

          It’s a terrible model because it is very easy for it to be abused. Unless they F up something for someone with actual power, there’s little recourse.

          1. Quill

            If IT is billing me for hours maybe they should actually figure out how to put my access requests into the right system. :)

        2. Devil Fish

          Me too. I’m really confused about what industry this is and how all the individual departments work. LW said it’s not a sales position, but then they said revenue had to be increased by taking clients on from sales or upselling current clients and I’m like O_o?

          Maybe TPtB has outsourced IT and finance and everything else that doesn’t directly bring in revenue or else those departments operate under different metrics that weren’t shared with LW.

          Tl;dr: This whole thing is weird and I don’t understand it at all. Sounds like some kind of start-up bullshit.

          1. Falling Diphthong

            This whole thing is weird and I don’t understand it at all.

            Puts me in mind of investing in bricks and mortar companies, rather than in companies who insist that what they do is so complex they can’t really explain it to you.

          2. ampersand

            Agreed. I’m trying and failing to wrap my head around this. Especially since the OP said it’s *not* sales.

        3. emmelemm

          But if IT charges other departments for their services, and they had to meet a revenue goal, the easiest way to do that would be to introduce bugs and problems such that they could then get X number of tickets to resolve them!

            1. Anonomoose

              There’s sort of no need to introduce bugs. Bugs happen. However, competent IT people anticipate where they might show up. Normally, we fix them. Under a system like this, if we know where they’re likey to be, we’re rewarded for ignoring them until they’ve become a problem

              1. Seeking Second Childhood

                Like when Wally discovered he could get paid for fixing his OWN bugs: “I’m going to program me a minivan!”

        4. Blue Horizon

          My company did this for a while. The IT department had charge-out rates for everything it did, which were applied as internal cost transfers when it was performing services for other groups within the business. I think we had two charge rates: the full rate card for external customers, and a low/no margin rate for internal services. This created all the problems you’d expect. The discounting meant that there was an opportunity cost for IT to provide internal services relative to the (full margin) external business. That meant that most of IT’s effort was spent on developing a viable outsourcing business that would be attractive to third parties (because that was the easiest way to increase margin) and internal services were neglected. Other parts of the business got more and more annoyed at the slow response rates and lack of priority. Peak ridiculousness was achieved when other business departments threatened to stop using internal IT services altogether, and either look for an independent provider or create their own service department. Meanwhile voices within the IT department argued that the internal business wasn’t worth it because the margins were so low and it was becoming such a headache, and they should just go fully independent and commit to the outsourcing model completely.

          At around this time we posted a massive annual loss and our CEO ‘retired’ and was replaced by a new one, who decided that we should eliminate the individual P&L and behave like we were all on the same side for a change. Within a remarkably short time all the problems went away and the relationships between IT and the rest of the business were repaired.

          1. Massmatt

            Wow this sound like a textbook case of dysfunctional management! Your company’s IT department was providing better service to the public, or even competitors, than to you!?

            1. Blue Horizon

              Yes. It’s the kind of thing that starts to make perfect sense when you are trying to operate like little independent businesses. Try Googling the Sears case study someone else referenced (“How Ayn Rand Destroyed Sears” is a good one) which sounds extremely similar to our (thankfully temporary) experience.

              You occasionally see the same ideology showing up either intentionally or unintentionally for internal operations, and it always ends badly. As a colleague of mine once described it: imagine half a dozen football games all being played at once on the same football field. And it’s dark, and all the players are carrying knives.

    1. Lord Gouldian Finch

      This sounds like the strategy that ran Sears into the ground. A proper business realizes that some departments simply aren’t profit generating but are needed to support the other departments. For example IT could decide against doing backups to save money, but when that ransomware hits everybody’s going to feel it…

      1. Jules the 3rd

        I thought what killed Sears was the corporate HQ ‘selling’ Sears’ real estate to a different subsidiary, then charging Sears very high rents. They essentially converted the brand into money and extracted it.

        1. SusanIvanova

          That was one of many ways that the CEO did his level best to transfer any part of Sears that was profitable into his own pockets.

        2. Working Hypothesis

          It was both. The hyper-capitalist system that the new CEO insisted was the only way to fly ran the business into the ground. Meantime, the CEO was running his *own* department like its own private business, by diverting all possible funds into his own pockets and away from the role of making the business function. Needless to say, the whole process didn’t work very well. But the core of it was the ideology that “every individual for themself against the rest” is a useful way to run a group enterprise.

    2. Mechawatts

      If the team A Reader leads is “run like a small business” then why shouldn’t they just start their own business. Current leadership is so divested they apparently can’t be bothered to do the basics like _budget_ or set goals. The existing team members probably feel likewise, and someone who can lead them out may inspire increased loyalty— to A Reader and each other!

      1. Oh No She Di'int

        I can’t vouch for the way this company does business, but I can guarantee you that despite the interviewer’s buzzwordy speech, leading that team is *NOTHING* like actually starting a business.

        I’ve started and run a few different businesses. Doing so goes way, way, way, way, way, way, WAY beyond simply deciding whether or not to get a Shutterstock account. There are . . . well . . . a few other steps. Not to mention the 90 hours a week she’d be working for the first year at least.

        I’m sure that was just a convenient conceit on the interviewer’s part, not meant to be an actual apples-to-apples comparison.

      2. Kira

        Someone else mentioned franchises earlier – I imagine there’s prestige to be had (and easier to get clients) when you’re a team at BigName Firm instead of a small group working over at NeverHeardOfUs LLC.

    3. ClumsyCharisma

      And it seems like it could potentially raise costs all around. One team buys X program but won’t let another team use it because they paid for it. Now the 2nd team has to either do without and not run as efficiently as possible or also buy X program.

      1. Gidget

        Oh this is a great point I hadn’t considered. A site license for 1000 computer is gonna be cheaper than one for 50 computers.

      2. Former Employee

        Not to mention the idea of each dept buying their own supplies at Staples or Office Max/Depot versus having a central purchasing dept/person where the company as a whole would get all sorts of discounts because …volume!

        I would not want to work in a place where: 1. They are essentially pitting departments/employees against each other and 2. They don’t realize that they are giving up all sorts of perks available to businesses that purchase in bulk.

        Good grief! Large families have figured out that if they buy the super jumbo pack of paper towels at Costco they will probably save a bunch as opposed to buying multiple 6 roll packs at the local market. If someone who is running a business isn’t as savvy as a parent (aka: family CEO), then they really shouldn’t be running a business.

    4. Magenta Sky

      “I don’t have to outrun the bear, I only have to outrun you.”

      Can’t imagine that fostering any other attitude.

    5. MissDisplaced

      I worked in a small division of a large global company that was like that, run much like a startup with its own budget.
      Also, teams (such as say marketing) do usually have their own budgets, to more or less allocate at their discretion, and that’s all fairly normal stuff, but salary & raises are typically kept separate.

    6. Mookie

      The inefficiency and lack of protections afforded to people working for small businesses, with the operating funding of a big business with profits going to shareholders and the executives. The worst of both worlds! Sign me up to never do this!

      1. Mookie

        Basically: how do we raid this corporation, drain its budget, scare off investors and creditors, and then make them go bankrupt trying to pay us (the new owner) to use their stuff? It’s literally how to liquidate a dying company to make a quick buck. Why the hell would anyone sign up for this?

  3. just a small town girl

    Holy toledo, that’s insane. If I’m reading correctly, it sounds like some of this might have been phrased as optional?

    they could choose to get it without needing to get the budget approved makes me wonder if it was pitched to you as an option, or as that’s how they do it and this is why it’s better. Either way, I’m suitably mind-boggled.

    1. IL JimP

      sounds like a good way to get employees to pay for supplies so their revenue targets don’t go up

    2. Peter the Bubblehead

      What happens if one team requires some expensive equipment or software and cannot do their work without it, but the cost is so much that it would require every team member to work 120 hours per week to maintain the revenue goal?
      What does the business owner do when his employees either quit en mass or start dropping dead of exhaustion?
      Imagine being part of the ‘wrong team’ when some issue arises such as having to replace the entire computer and network system in order to keep doing your required job!

  4. SusanIvanova

    “He essentially said that each team runs like “independent small businesses,” in which the team lead would act as the “business owner.” Each team has a revenue goal that needs to be met each month/quarter, and it’s each team member’s responsibility to pull their weight to get there”

    This is how Sears died. Each division had to compete with other parts of Sears, so divisions were incentivized to not help other parts of the company even if it would help the company overall. This resulted in things like sending customers to another store instead of another Sears department, or using outside vendors for office supplies instead of buying in house.

          1. ThatGirl

            Sears isn’t officially dead, but it might as well be.

            Also the most recent CEO sold off the most profitable brands of the company for parts, essentially.

            1. Seeking Second Childhood

              I’d missed it too, until I went to get a new replacement X for my VeryExpensiveGadget and was redirected to Lowes. They not only lost my VeryExpensiveGadget business, but they lost my “as long as I’m here let’s replace my wornout jeans” business. I’m doing one errand, I’ll just walk to whatever’s closest to Lowes. (In my case, that’s Target.)

      1. SusanIvanova

        Consumerist had a long series of articles on the decline and fall of Sears, or Google “sears internal competition” and there’s lots of hits, like https://www.businessinsider.com/eddie-lamperts-sears-strategy-disaster-2013-7

        “Kenmore, a brand sold exclusively by Sears, is its own unit. Sears’s separate appliance unit found it could make more money selling other company’s products, however, and therefore it gave outside merchandise more prominent placement than one of the company’s signature products.”

        That was 2013. It didn’t get better.

        1. Chinookwind

          That sounds a lot like the company I work for. We all do stuff in the teapot industry and could easily support each other to make a fabulous product, but because each department has to justify monthly whether or not they make a profit, we don’t work together. Add to the mix the corporate policy of a flat overhead fee for every man hour (think $20/hr overhead for every hour worked), it turns out that, on paper, our hourly cost to us internal resources (like our trucking department) is roughly $10/hr higher than the competition when, without it, we would be the cheapest in the area (internally).

          The overhead goes straight to the bottom line and I believe it is used for “monkey math” to even things out at the owner’s level (we have been privately owned for 60 years in a field that is as stable as chocolate teapot filled with tea – so whatever he does does work), but it doesn’t stop TPTB from raking the division managers over the coals if they can’t explain any losses.

      2. Chase J

        The CEO took Ayn Rand pretty seriously and followed her ideas on how to run a business. As you can see it didn’t work out very well. (Can’t link in the comments but if you Google “Sears Ayn Rand” you’ll get a ton of results)

        1. Former Employee

          I don’t think Ayn Rand meant what that guy thought she meant. Or, to put it another way: I know you think you understood what it was you believed I said…

    1. Fortitude Jones

      I worked at an insurance company that had over 30 divisions that all operated independently of each other because they all sold niche, speciality products. We weren’t encouraged to compete with each other, and if someone contacted, say, an agribusiness property division for a general commercial property policy, the agribusiness division would send the potential customer over to the general property division for assistance.

      But yeah, divisions didn’t really help each other because they were focused on different things, and if a division consistently lost money over a long period of time, the company would sell the division off and/or run off the products and consolidate the remaining products into another similar division. They’ve been around for over 40 years and continue to grow, so that line in the letter didn’t even phase me because I’ve seen something like it be successful.

      1. Meercat

        I used to work in a company (in the UK) that did something similar – they had grown via acquiring a lot of small businesses and never really integrated them all that much and instead ran them as separate ‘business units’, and while it looks somewhat successful from the outside, it really was a nightmare from the inside. Products that were overlapping between different units would be handled as a ‘joint venture’ but it happened waaaay too little, and there was too much overlap in client base (clients were big big companies that would have different departments that each business unit was targeting but they WOULD indeed have centralized functions such as marketing etc), so clients would get a LOT of different sales calls from all areas of the divisions (with everyone having access to contact details databases – sigh).
        Also, because they were all running as ‘small businesses’, the central functions hadn’t seen sufficient investment in decades. HR existed almost solely of payroll people (in fact, the only time I ever interacted with an HR person in 2 years was when I got my reference after leaving); IT was in shambles (in 2012 when I applied the websites solidly looked like they were late 90s – should have been a red flag for me right there), professional development or paths to promotion simply didn’t exist (it was also, surprise!!, a total old white boys club). And every business unit was trying to reinvent the wheel / run in a new direction, often stepping right into what another business unit was doing.
        It was sold to us at the time as being a way to be nimble and innovative. I’ve never seen anything nimble OR innovative about that place, except for a couple of ex employees who started up a competitor by pretty much doing the opposite of what we had been doing in every way, and it looks like they’re pretty successful.
        I got out of there after two years. Still kind of regret taking that job. But hey, I was a fresh grad in the middle of a recession, and I had 3 weeks on my lease (and no $ to sign a new one) when I took that job, so you do what you got to do.

    2. Clay on my apron

      I worked for a bank that had a similar philosophy. Not quite as bad and they are still in business. But one example of the craziness was when we (newish mobile phone banking department) approached them (more established internet banking department) to discuss using their customer authentication system, so that customers only had to remember one username and password, and the bank didn’t have to pay to develop a separate system. They said no. And we couldn’t do anything about it.

      1. Becky

        Oh! for YEARS I couldn’t view my checking/savings accounts and my credit card account (through the exact same institution) with the same login for one of my banks. It was ludicrous!

        1. Door Guy

          Only in the past year have I been able to. I didn’t need a separate log in BUT I couldn’t check on my credit card through the mobile app and if I did it through the website I got redirected out of their website and into the credit cards website, even though I signed up and was issued the card right in their building.

          1. Joielle

            I used to have a bank like this! It was actually one of the main reasons that I closed my account there and joined my husband’s account at a different bank after we got married, rather than him joining mine. So irritating.

        2. Seeking Second Childhood

          Now if my family’s bank would just figure out that “yours mine & ours” accounts need to be linked at least enough that family members can authorize others to see & pay for their bills. It drives me nuts that I am paying the bills and miss one because it doesn’t even tell me there’s something due on the card in my husband’s name.

    3. Fake Old Converse Shoes (not in the US)

      I know a major telecom that works like this. For example, there was a new router model that needed to be tested, and Warehouse refused to lend a unit to Operations, so they shipped them anyway… And tested only when a team member got one from an acquaintance who was a client.

    4. CJ

      Two divisions aren’t competing against each other. One team making or exceeds their profit goal doesn’t mean that the other teams profit decreases.

      1. Working Hypothesis

        It can certainly lead to wanting your team to look good compared to others, however. And in a lot of cases, when the literal financial cost to your team is less to work with outside resources than inside ones, it can lead to sending money out of the company when there’s no reason to.

        1. Working Hypothesis

          Well, since multiple divisions aren’t usually making the same products, it should be rare that they compete for clients. If the toaster division and the microwave division are both seeking the same clients, that’s still not a competition, because people who actually need both a toaster and a microwave will buy from both departments, and those who don’t have any need for a toaster are not going to get lured away from the toaster group by the microwave sales people, because a toaster isn’t what they need in the first place.

          But it can definitely get weird when the divisions overlap, and while that really shouldn’t happen in a well run company, this kind of company is very rarely well run. If the microwave division is allowed to start selling its own toasters because it is operating like a small business and that’s the way it thinks it can meet revenue targets… well.

    5. ampersand

      How did they not see this as a potential (likely) outcome? Unless you’re assuming the best of everyone all the time, this seems like an obvious conclusion. I’m the person at work who thinks though and points out how ideas could go wrong, though. Not in an overly pessimistic way, but more like: let’s examine this to see if it’s feasible and how it could play out–and are there any unintended consequences? How Sears missed that their stores would go all Lord of the Flies is beyond me.

      1. SusanIvanova

        The leading theories are either too much Ayn Rand, or it was intentional. Or possibly both; the CEO came out with lots of money, which makes everything he did justifiable by Rand rules.

      2. Working Hypothesis

        The new CEO was a crazy Randite and massively into the ideology that said this was the only moral way to go, and it WOULD work, damn the facts.

    6. Beth

      It’s highly reminiscent of what killed Microsoft — the stack rankings that meant that team members were always in a fight to the death with each other.

  5. Matilda Jefferies

    All I could think when I was reading the letter was WHY would anybody want to work under this kind of arrangement? It sounds awful. I think the best thing you can say here is at least the interviewer was upfront about it, so you have the opportunity to get out before you get in!

    1. Snark

      Nobody wants to work under this arrangement. Shitty, greedhead bosses want their compensation package and bonuses tied to this kind of arrangement.

    2. Blossom

      Someone whose ego is tickled to be “like a small business owner” (or likes the idea of working in a team that’s not just your usual corporate minionage but a thrusting little business that they could one day rise up and “own”!), with the stability of a permanent job, but who hasn’t thought through the downsides.

        1. SusanIvanova

          I have never seen “sucker’s compliment” before (and neither has Google) but it’s a perfect way to describe the situation and I am going to adopt it :)

          1. Former Young Lady

            I fully admit to making it up! But it sounds like it actually conveyed my meaning, so you have my blessing to “make ‘sucker’s compliment’ happen!”

    3. Door Guy

      I’ve worked under a few crazy/convoluted systems before and it always seemed that the reason people stayed was that they knew how to game the system to maximize their profits. Others would come in and put up with it as long as they could but if they couldn’t figure out the “tricks” they either sat and were miserable or left to try their hand at something else. It was good money if you could stick through it, but definitely not for everyone.

  6. NerdyKris

    There is no doubt in my mind that the intention of that is to make it so people don’t ask for raises, by saying “If you get a raise, I’m going to make your coworkers lives worse and place the blame squarely on you”. Anyone who tries to get ahead is going to be seen as sowing discord among their coworkers.

    1. Amber T

      This – there’s totally a guilt factor here. Not only to get ahead, but I’d wager there are plenty of people who are very underpaid to “keep the peace.”

      Also, is raise information known to everyone? Like, is it announced at the beginning of the quarter that Sally got a 7% raise, so our revenue targets are now 7% higher? Ridiculous.

        1. Fortitude Jones

          Exactly. I would imagine for something like this to work, management would have to tell them when someone got a raise to explain why their revenue targets just went up again.

      1. Genny

        Exactly. Any guesses on which groups of people are most likely to be adversely affected by this ridiculous policy? Hmmm…..it’s a mystery.

    2. JM in England

      I can see parallels of this concept with entire military units in training being punished because just one of their members screws up!

  7. Snark

    Oh, screw this guy so much. This is how GM is screwing itself, this is how Sears killed itself, this is very very bad and he’s a bad manager and this is a company that is managerially innovating itself into layoffs and Chapter 11.

    1. Tina Belcher's Less Cool Sister

      There’s another comment here explaining what happened to Sears, but what’s going on at GM?

    2. Catsaber

      GM is doing this? I keep getting job links on LinkedIn for positions at GM and sometimes they are tempting (especially because I live like 3 miles south of the GM offices where these jobs are).

  8. Bend & Snap

    Noooooooooooooooooooo

    You should be enabled and empowered to do your job with the right tools and incentives. None of what is outlined here is an incentive.

    1. Snark

      Oh, but it is an incentive! An incentive to race to the bottom and destroy your private life and collegial relationships for the price of no raises and endless stress!

      1. Kyrielle

        Here I was thinking it was an incentive to go find a job somewhere else and stay far away from this madhouse…well, probably that also.

    2. JM in England

      The old proverb “You can’t make a silk purse out of a sow’s ear” springs to mind….

  9. Combinatorialist

    I also wonder how PTO, being sick, and stuff like family leave is handled here too. That seems like an “expense” and it is unclear (and highly doubtful) that the profit goals account for stuff like people taking time off.

      1. Matilda Jefferies

        “Sorry, I miscalculated. That should have said 2.103% – sorry for the confusion! Oh, and Sally, I’m sure I speak for everyone when I say I hope your kids feel better soon.”

    1. MechanicalPencil

      It also makes me wonder about insurance and such also. Like “well we’d go for a nicer insurance package, but then everyone’s profit goals would need to increase 8.42%, plus your out of pocket costs…” Just how deep down the rabbit hole does this go?

      1. Kathleen_A

        I wondered about that too. And also what happens when an employee becomes “expensive” due to a long illness or a spouse with a long illness. We’re kind of a medium-sized company, but a few employees/employee spouses with long illnesses can really affect insurance rates for the next year or two!

      2. CJ

        The profit goal doesn’t go up because of the additional expenses. The revenue call increases so that the profit remains the same.

        1. MechanicalPencil

          Ugh, thank you. My brain is swimming with actual work things and lack of sleep, so I knew profit wasn’t the word I really wanted.

    2. Devil Fish

      I just assumed they had no leave structure or insurance, and even if revenue goals wouldn’t explicitly be increased when Sally’s out for medical reasons those goals definitely aren’t being reduced due to lack of coverage.

      1. LapisLazuli

        “Well if you need a leave, the door is over there” type. I’d worry about their HR department but I doubt they even have one because it wouldn’t turn a profit.

    3. CJ

      PTO, vacation, and sick leave would all be covered under your salary. It’s not an additional expense to the company that they hadn’t already budgeted for.

      1. Nephron

        Except when you take PTO the output from the employee decreases that week. So you have the same expense that week, but have decreased output from that member.

        1. CJ

          It’s not clear to me if the monthly and quarterly profit goals are the same throughout the year, or if they are set individually. If they do differ, and year over year PTO is taken round the same time, the goals should reflect the decreased revenue during this period.

          In my job, which is mostly income tax preparation, the vast majority of the revenue is generated during tax season. There’s no way you could have the gross revenue and profit targets the same every quarter of the year.

      2. Dagny

        FMLA isn’t, though, and it’s easy to imagine hating on a co-worker who needs to take time off because either (1) you all cover his workload for free, or (2) your revenue goals go up and you all do extra work.

        1. CJ

          Whenever I’ve had a co-worker on FMLA, the rest of us had to do their job for free. We never got a temp to cover their duties. From I’ve read on this blog, that’s not all that uncommon.

          Plus, in once you use up your PTO, medical and maternity leave is usually taken unpaid. So even if the company hired a temp, the wage expense wouldn’t go up.

        2. CJ

          I also meant to say here that if the leave is unpaid and a temp isn’t hired, expenses would actually go down. So the rest of the team covering their coworkers duties should be able to be paid a bonus for the increase in their workload and still hit their goals.

    4. LKW

      This was my first thought as well. You’d stop hiring women because they might have children and take FMLA and then you’d have to compensate. Or you’d just toe the line on hiring but then make it really clear that anyone who needed time out of the office was dragging down revenue. The leap to hostile work environment isn’t a long one.

  10. Cobol

    I think this is totally fair, but enough of a reason to not take the job.
    I worked at a company out of school that was sorry of like this. It was fine (a horrible company ethically, but fine to work at), but it led to some ridiculous decisions, up to the branch manager paying a utility bill late so we’d meet or quarterly profit.

      1. Cobol

        Because of things like managing salary we had to work only 40 hours, in general expectations were clear, there was opportunity to extend your skill set, as long as our branch was doing fine we largely didn’t have to worry about other’s performance, etc…

        1. Devil Fish

          That sounds like you’re justifying the bad parts by listing things you thought were good at the time but should be standard at any competent employer.

          1. Lance

            I’d have to agree with this. The experience sounds like it was useful to you in the long run, in terms of what you got out of it… but the business itself sounds disjointed and dysfunctional.

            1. Cobol

              See below for a longer response. I’m getting the feeling that people are responding to the ethical nature, not the substance of my response on the each group it’s it’s open small business.
              I don’t want to get too far off topic, but I think it’s important that the definition of ethical is personal. You could make a valid argument that any for profit business is not ethical, but that doesn’t mean it’s not fine to work there.

          2. Cobol

            I’m not sure I understand. That a company could work like this doesn’t mean it should, or that most so.

            I know very few companies where people work 40 hours a week, and would give up $20k a year if I could find one (that would hire me). I hated working there because of it not being ethical, and quit after about a month, so I’m not sure where you’re getting that I liked it. I was just answering the response that a company with this structure could be fine to work at.

            1. Seeking Second Childhood

              I’m not outing myself, but this Fortune100 company has large swaths of professionals on the clock, any OT for special-project deadlines needs approval.

    1. Meercat

      This comment also made me think about the sheer cost of not having efficient processes; like yes sure you can be so nimble to pay for a different software, but the reason why companies have centralised purchasing or centralised IT / office admin (plus paying for utilities etc.) is to minimise fraud & to make purchases cheaper (you can’t just buy something at twice the price because your cousin sells it) and more efficient (have 1 or 2 people across the company handle it who do this all day every day, instead of 100 people doing it once a year)….

      1. Cobol

        Yeah. There are so many examples of economy of scale. I do marketing, and 4 of me with 4x responsibility would out perform one of me doing 1x.

  11. Semprini!

    I agree with Alison’s “Run”. I also find myself wondering (just out of general curiosity, not because I think this is something OP should consider as a viable employment option) to what extent the teams are actually empowered to act as independent small businesses. Can they set prices? Can they decide they want to move to more affordable office space? Can they discontinue products and services, or offer new products and services? Can they change their team’s revenue goal?

    1. pamela voorhees

      Oh my god, can you imagine? “Sorry, boss, we’ve actually decided that we’re better off without the parent company at all, so I’m going to need you to sign these tax forms so we can incorporate as an actual small business.” This is a buck wild setup. +1 to “run”.

    2. GrandBargain

      Exactly. Say the team manager decides to hire additional staff because it needs more resources or specialized expertise. If it costs more to provide the service, a price increase may be warranted. Can the team then go to the ‘client’ — which may be an outside customer or an inside department — and say we’re increasing the price of your services by X%? Can the internal client team decide to outsource the services because it doesn’t like the price increase?

    3. Clay on my apron

      Typically with this type of setup, your “independent” small business is obligated to pay for services from internal providers like marketing and IT, and often for poor quality at an inflated rate.

      IT will decide what hardware and software you’re allowed and how much it will cost. They’ll charge you for support on their terrible legacy systems.

      Marketing will force you to use their overpriced agencies who are still under the impression that digital is a risky place to spend your media budget, and you’ll have to pay for the layers and layers of marketing consultants between you and the agency.

      Plus, unlike an *actual* small business, you don’t get to set your own business strategy, goals, etc. Or your revenue targets for that matter.

      It’s like shooting fish in a barrel (and you’re the fish).

  12. Arctic

    I don’t say this lightly but “no, nope, absolutely not.” Run, if feasible.
    This sounds exactly like the model that helped accelerate the demise of Sears.

  13. Dust Bunny

    You don’t want this job.

    Nothing about this is a good idea and, yes, you’re seeing a sea of red comparable to a New England autumn.

  14. SusanIvanova

    This is also the logic that leads to your company’s flagship product being jettisoned because its growth curve has stabilized, even though customers are only buying the new flashy product because it’s an accessory for the flagship one.

    1. One of the Spreadsheet Horde

      This. This destroys any incentive for various units to work together for better outcomes long-term.

      There is also the potential for extreme short-term thinking and potentially unethical behavior for teams to “hit” internal profitability requirements at the expense of long-term viability. R&D gets put on the back burner since it takes years to pay off. Marketing and store updates are delayed until things are falling apart. Customer service is reduced. Avoiding regulatory requirements, safety needs, or getting legal input saves expense in the short-term.

    2. Seeking Second Childhood

      Or product#1 left unmaintained while you push product#2 and product#3, even though some of your customers NEED things about #1 that #2 just can’t do. In cases like that, a competitor can spring into being fully formed like Athena from Zeus’s forehead and you’ll be scrabbling to catch up. (See: Adobe FrameMaker/InDesign/RoboHelp & MadcapFlare)

  15. Czhorat

    If I wanted to run my own independent small business I’d run my independent small business. I work for a larger firm because I *don’t* want that.

    I also like working somewhere in which the entire organization is on the same team, and it isn’t made up of little silos, each guarding their own resources because those resources equal profit.

    1. lulu

      I know, right! and I won’t feel “ownership” when I really don’t own anything, that’s just them trying to replace fair compensation and management with silly ego boost

    2. CommanderBanana

      ^^ This

      I worked for small businesses all the way up until leaving grad school (and still do part-time for fun) but I do not want to run an independent small business because it is hella stressful and takes over your life.

  16. 5 Leaf Clover

    Run and *tell him why*. You have nothing to lose, and maybe you’ll help the people he employs by getting him to think twice about this awful policy.

    1. Devil Fish

      Right? I kind of want LW to copy/paste Alison’s paragraph about why this setup such an unmitigated clusterfuck and send it as part of the email where they politely remove themself from consideration.

  17. Future Homesteader

    I feel slightly queasy just reading about this structure. Talk about a prime way to pit employees against each other, while ensuring that work gets done as cheaply as possible but the bottom line stays the same for the owner.

    1. Amethystmoon

      That, and I would expect there to be lots of drama. I would run away from a job like this too.

  18. The bad guy

    As someone who works in IT, how tf do the developers get paid? They definitely don’t generate revenue unless each sprint/ticket is getting “charged” back to another team. It honestly must be a skeleton crew. I would love to see this company’s website, I bet it’s garbage.

    1. No Tribble At All

      Right? I don’t see how this works for “support staff.” I guess teams aren’t organized by function, because how do they expect Facilities to turn a profit? Or maybe the building does as they do in Europe, where public toilets cost 50 cents. Does the janitor bill your team for using the restroom? This is baffling.

    2. R.D

      It’s not just IT. Most departments don’t directly generate revenue (accounting, finance, facilities, HR, shipping & receiving). Even with departments that do generate revenue, how do you separate the revenue from sales vs the revenue from manufacturing?

      1. Dancing Otter

        Transfer pricing. It’s a whole subspecialty of cost accounting. They even do it between processes within the manufacturing stream.
        Otherwise, some salesperson will offer a potential customer product X for less than the cost of making product X.
        “Hey, we increased sales volume!”
        “No, you lost the company money.”
        “But sales!”
        “No, if you lose money on each deal, you can’t make it up on volume.”

        1. CJ

          Yep. The value of the service that the IT team provides to the accounting team for instance, is revenue to IT and expense to accounting. Overhead light billing expenses are allocated based on things like the number of private offices in cubes that your department uses.

      2. mcr-red

        That’s what I’ve been wanting to know, because you’re right, most departments don’t generate revenue, but are an important part of the product being sold! How do you ever prove you’re expenditures versus income?

    3. One of the Spreadsheet Horde

      We have P&Ls at the business unit and product level and support costs are allocated back. So the Chocolate Teapot division gets a percentage of the HR total costs and IT support costs. Corporate has a heavy hand in setting the support budgets but there’s a lot of political negotiation involved.

    4. Meredith

      I was also thinking that. What, exactly, are the “revenue goals” for human resources? Some entire departments and positions are really things you have to chalk up to the expenses of doing and having a functioning business. Does the janitorial staff buy supplies from their budgets in lieu of pay? “Well, it looks like we overbought on the pine sol this quarter, so no bonuses for you guys.”

  19. Gidget

    I also wonder about the resentment that you might face as a new team member in this situation. Because just by hiring you it means that the revenue goals are raised for the whole team… which means everyone already there will have to work harder to meet the new goal set because they hired someone new who was presumably brought in because they needed more help to do the work in the first place. Very counter intuitive. And seems destined to stir up resentment and discontent everywhere.

  20. Christine

    So…. I’m actually finding the response and comments to this one a little bit perplexing.

    This is how my company operates as well – is it not standard? I mean basically each department head is responsible for a P&L (profit & loss). Team salaries, technology, etc. go against “losses” and revenue from clients go against profits and each team lead is responsible for hitting some level of ‘profitability’ which is set by leadership depending on the overall goals of the company/team.

    I thought this was a pretty regular way of operating a business – what I find problematic about the LW’s situation is that this was discussed so openly / transparently. In my company, this is shouldered by the team lead but nobody else is ever made to feel ‘guilty’ for getting a raise, or like team members’ salaries are tied to their own work expectations. Good management means managing the budget, which includes fair pay, reasonable work hours, etc. A good team lead would never make this whole balance of costs/assets so transparent. So I would definitely be VERY concerned about what the interviewer said, but not necessarily because this is such a crazy business practice.

    Now I’m wondering if my company is crazy too?!

    1. Quill

      It’s probably not the “every team has their own accounts to manage” that’s a problem, it’s the excessive pettiness of the budget and the way it’s clearly going to foment jealousy.

      “We need to sell 300 more teapots because Sally took a day off,” is not going to be a functional team.

    2. Alton Brown's Evil Twin

      2 differences – scope & responsibility.

      Scope: sure, what you’ve described is normal for departments with hundreds or thousands of employees. In OP’s case, it sounds like each P&L unit was 5 to 8 people.

      Responsibility: the department head is responsible for deploying resources, etc. to make those targets. In OP’s case, it seems like the responsibility has been diffused down to the individual contributors, which creates this continual sense of panic and doom. It’s like being in a boiler room selling penny stocks, or a real estate sales guy in Glengarry Glen Ross.

    3. Countess Boochie Flagrante

      Yeah, no, this is not normal. Things like premium business accounts, resources needed to do your job, etc, are not directly balanced against your metrics. They are a cost of doing business, and the cost is managed by the company as a whole, not individually by team.

      1. Matilda Jefferies

        And you don’t automatically increase revenue targets to account for increased expenses. Sometimes you have to accept that your revenues for this period will be lower than those for last period, as in animanictoo’s example below about buying new computers.

        Most companies would understand that X new computers at $Y each means $Z less revenue for the year; but the model the OP is describing is more like X new computers at $Y each means that everybody has to work Z% harder in order to reach our (unchanged) revenue targets.

      2. Colette

        And if one department decides to cut costs by, for example, using pirated software, that’s not going to end well for the overall business.

    4. Kathlynn (Canada)

      I would say that it’s because it’s more like “we won’t give you a budget to work with” rather than being required to balance the budget you are given. Like, say you are required to make 6k/day in sales you would be given a budget to go along with that. This company is saying that you need to make at 6k+x/day in sales.

    5. The Man, Becky Lynch

      It’s always on leadership to watch costs and the bottom line but not to this kind of extreme.

      First of all a budget should have built in reserves, so that when you find out that you need to replace a piece of equipment or get a new account for your employees to use, it’s there without any nonsense about having to adjust your profits. It’s already figured in.

      To run it on such a shoestring and put that rock on the back of a team lead is too much. Nobody should be worried that by getting a $2000 annual raise means now you have to find an extra $2000 in sales. That 2000 needs to be built into the annual budget right away. So for awhile you’re operating below budget until it’s time to hand out raises and increase those costs.

      Also you aren’t in charge of sales that much, there is only so much you can do and the business needs to be structured so that it can handle less than your sales goals. Since sales goals are often a nice idea but you literally can’t just make them happen without all the right pieces in place. So they need to be incentivized and a warm-fuzzy idea more so than a “Well you didn’t meet goals, our profit is lower than we accept from your department, so no you can’t have a salary increase or else you’re all gonna get let go for being below the amount we set due to our own magical maths and dreams.”

      1. nonymous

        I’d argue that it’s not so much reserves as the actual cost of doing business that this company hasn’t budgeted for. Supplies cost money (so do salaries), inflation is a real thing, stuff breaks, customers expectations change over time. Some sectors experience an increase in costs that are greater than inflation (see: insurance premiums). That is the cost of doing business.

        If they want individuals to take on responsibility for funding salaries and business expenses out of gross receipts, the compensation paradigm is a 1099 contractor; but that would mean paying 30 – 50% more than what a W2 staffer sees on their paycheck and taking a huge step back when dictating processes.

    6. SomebodyElse

      I’m with you… and am used to operating in this environment. I’m not buying the scope that’s different. My company has ‘divisions’ for lack of a better term that are tied to specific contracts. So the personnel can be as low as 2 people up to 50-75 depending on different factors.

      I think the success or failure of the model is in the details. And I get the feeling that this was explained very badly in the interview.

      1. Ask a Manager Post author

        But I doubt very much that every time you have an expense, your revenue goals go up. Presumably you have an actual budget created in concert with those goals, and that budget already includes money for things like software. The problem here is that there appears to be no budget.

        1. SomebodyElse

          I think I was still composing my nonsensical add on when you posted.

          Yes, there should be a budget that includes things like cap ex spending and other expenses. That’s why I’m thinking this was a bad description on the part of the interviewer. I wouldn’t expect them to pull out the financial model in an interview, but used the description that the OP gave us as a way to describe separate P/Ls and didn’t go into all of the details.

          1. Ask a Manager Post author

            I would agree with that if it weren’t for the details of what he actually said! His example of needing Shutterstock accounts really sounds like there’s no budget.

            1. Kathleen_A

              Yes, exactly. Clearly every department should not get a Shutterstock account willy-nilly, but some definitely need one (or at least something a lot like it). Well, that is a necessary budget expense, and a department that truly needs it should not be penalized for that.

              1. CJ

                I also think there’s a budget. The way I read it, the employer was talking about increased expenses over what they had budgeted.

                Alison mentions what the employer actually said. To me, as an example, one of the things they said is if you need to hire a new person, the revenue would have to increase (over what they budgeted). If hire an additional person, it’s likly because the workload increased, and if the workload increased, it’s logical to assume that your revenue also increased.

                I don’t know if the employer explained it incorrectly to the OP, or if the OP isn’t quoting exactly what the employer said to us, but if it’s not like I’m assuming, it really doesn’t even make sense.

            2. Oh No She Di'int

              Honestly, I think we’re dealing with potentially a bad description by the interviewer and possibly–forgive me–perhaps some misunderstanding or vague reporting on the part of LW on top of it. All of this discussion presumes that LW understood every detail of what the interviewer said and that she reported it all 100% accurately.

              Bearing in mind that she was unfamiliar with this model, it’s entirely possible that she may have slightly misreported some details.

              Take the example of hiring. I can imagine a scenario in which staffing levels are set by the budget the year prior. And those levels are presumed to be appropriate to whatever the revenue goal is. But you, as team leader, might say: “You know what, a full-time aerial photographer would really give our team that special edge.” Management might then say, “Ok fine, but your revenue goals have to be offset to reflect that, because your current goals had already priced in the presumed necessary staffing and basic overhead expenses.” The team leader might say, “Sure, bring it on!” Or she might say, “You know what? Some Google Map images will be fine.” That’s where the team lead control of resources idea would come from. Of course, all of this in conjecture; we actually didn’t get this much detail from LW.

              It just seems like more of an Occam’s Razor type explanation that some details got muddled than that there exists this major company out there that is apparently way outside of business norms.

              1. Oh No She Di'int

                To add: Allowing the possibility that LW may have misunderstood something and/or that the interview may have mis-explained *and* LW said that she is “really interested” in the job, maybe instead of run, the advice here could be to email the interviewer along the lines of: “Here’s what I understood you to be saying about the corporate structure. Is this correct?”

                There may be an opportunity here to straighten out a misunderstanding. Or not.

      2. SomebodyElse

        Adding: I think I’m having issues with the revenue going up with the expenditures. This is what I’m getting stuck on. I’m not an accountant, in finance, or really any knowledge above setting and sticking to a budget. But what I think is being described is this.

        So a basic example would be if I am hitting X metric with Y employees I can add another headcount but I will need to hit X+n to offset the expense.

        As for raises and capital expenses that should be part of the formula and I’m sure it is and that’s where my lack of accounting and finance knowledge starts to become glaringly apparent :)

        1. Lance

          ‘So a basic example would be if I am hitting X metric with Y employees I can add another headcount but I will need to hit X+n to offset the expense.’

          To me, this seems sound… but also kind of backwards, in terms of what the business should be doing. It shouldn’t be ‘we need to hit this goal because we hired someone’; what it should be (at least to me) is ‘we hired someone because we want to hit this goal’.

          I hope I’m making myself clear; basically, you should be setting goals then doing what you need to do to get there, not taking an action and being mandated to make more because of it.

          1. One of the Spreadsheet Horde

            I do the long-term forecasting/budget setting for a large business unit in a large company. This is the way we set the budget – if we need $xB in revenue, then we provide them with $yB budget in expense. Revenue is based on market trends and company positioning for each product, expense is by line item and heavily driven by revenue.

        2. Theophania

          As someone who is currently dealing with the repercussions of functions like HR and Finance and Sourcing not being given cap ex budgets and assuming they can authorize an endless stream of widgets in regions where the local cap ex thresholds are very low, the idea that there is no budget and spending is explicitly tied to revenue makes my shoulders go right up around my ears.

    7. ArtK

      I’ll ask the same question here that I did elsewhere. How does your company account for groups that aren’t revenue generating at all? HR and IT come to mind. These are essential infrastructure but their connection to revenue is very indirect.

      Having a full division accountable for their own P&L is one thing, but in the OPs situation it sounds like it goes down to the individual team level which is far too fine grained to be useful.

      1. mcr-red

        What about receptionists? Billing? There are a lot of positions that are used in companies that aren’t revenue generating.

      2. Oh No She Di'int

        This isn’t that hard actually. Those are part of overhead and are factored into the budget ahead of time. So the full cost of running, say, a production department includes within it the cost of the receptionist, the HR department, warehousing, etc.

        Also some companies do use a system of internal service departments that actually do get “paid” by other departments. IT and Graphics departments, for example. I don’t pretend to know how this works, so that is the extent of my knowledge on that.

    8. designbot

      This is where I find myself falling on this too, it’s just a bit more transparent than usual. I know that if I want to hire the employee I need, I need to sign 200k more work than last year to support that hire. Although, if a company wants to do this, one way to keep away the infighting or weirdness around salaries is to do it by salary band instead of by specific salaries. Basically if you always plan as though you’re paying everyone to the top of their salary band, that means they have the entire breadth of the band to grow.

      1. Clay on my apron

        So this is where it falls down for me.

        “if I want to hire the employee I need, I need to sign 200k more work than last year to support that hire”. What if I’m scaling up because I manage the IT helpdesk, and the company just rolled out new software that’s generating more tickets, but then one of the department closes down and I now have surplus staff? How do I cover the costs, which I’m incurring due to a decision made by another business unit? Presumably I’m not allowed to look for clients outside the building.

        I just can’t see how this model works for most companies. Maybe it works for big consulting companies only.

        1. TechWorker

          Tbh in a big enough company,
          if they close down a whole
          department and need fewer staff then it’s presumably redundancy time. But yeah – for things that aren’t directly revenue generating there would generally be some creative internal accounting I think.

        2. designbot

          Then you’d have to demonstrate that your improvements led to the remaining business units getting X more hours back, freeing them up to do Y additional work. If your new system that generates additional tickets couldn’t be said to do that, then you’d be left with the question of why it was important to invest in.

      2. The Man, Becky Lynch

        Usually you aren’t going to hire someone unless you have increased workload to require it though, so you should have that extra profit already sitting there and ready to pay off the additional job you’re creating.

        If I have an uptick in work to deal with, it should be due to the fact I have an uptick in revenue that’s being generated. The idea is to hire someone with that increased revenue so that you protect your assets [your other workers and safe guard yourself because what if one of your employees is hit by a truck, who’s going to take over all their duties and possible backog of work]

        In the end you should rarely find a time when you are “looking” for money, it should be sitting there in a reserve for when this time comes. That’s generated by charging healthy margins and not overextending the company resources but not done by deciding there simply are no resources unless someone can come up with some extra hustle.

    9. Head of Operations

      *puts hand up* I’ve also seen this run really successfully in businesses I’ve worked at in my industry. It’s inspired by agile management, and helps to empower teams and avoid the top-down management that gets cumbersome as businesses scale https://businessandfinance.com/squads-tribes-guilds-agile-management-future-workplace/

      I work in the service industry (eg expert services consulting, digital agencies), so ymmv.

      Some key points people in comments are missing:

      – nonbillable staff don’t belong to these business units, only billable staff do. So your IT and HR people aren’t part of this model

      – OP’s interviewee isn’t doing it very well re promotions. There should be blended cost rates for each role across the business. So if your unit has a Technical Lead, their cost to the unit is the same if they are at the bottom range of salary or the top. If you bring a whole new person into the unit, your revenue target should rise so you still make the same margin.

      – the software costs make sense to me as long as they are not business wide. If they are business wide, they are ultimately part of everyone’s blended cost rates. If an individual unit decides they want to innovate with new software, they are motivated to convert that innovation into increased revenue or pass the cost onto the client.

      – and if more IT people are added to the business, it’s up to the business to manage that cost and how it impacts the overall business’ margins. If they decide to increase nonbillable staff and that affects the cost rates, the units’ margin targets should change.

  21. The Man, Becky Lynch

    This place sounds awful. Not only do you have to pay for those raises with extra work but you have to pay for reasonable business expenses, like a premium business level account with a vendor by doing more work as well. So there’s no win here, the business takes no responsibility for their own costs, they put that on their teams shoulders. Then they have the nerve to try to sell this procedure like it’s golden. It sure is golden, for the business itself while it exploits it’s employees.

    This place won’t compensate you properly and it’ll eat every part of your soul as it sucks you dry for every ounce of steam you can provide them.

    1. Clay on my apron

      It’s also the type of place where people will steal each other’s stationery and coffee. And if they are actually competing for bonuses, they’ll actively sabotage each other.

      1. The Man, Becky Lynch

        I also imagine it’s where you don’t get proper training, since it takes time and resources to train the newbie. The newbie that’s costing your team more money and therefore needs to just figure it out themselves and “earn” their keep from the get-go.

  22. Ben H

    This is an example of a dynamic matrix budget, a bad example, but an example nonetheless.

    Segmenting the budget by teams (departments) allows for better management of overall resources, and allows top level leadership to better support the development of rising leadership. Not only does the rising LS gain real-world experience on how to run a company, the organization overall can set expenses as a function of each team’s revenue, which makes it easier to identify areas that need improvement.

    This budget is just poorly executed and the goals of its execution end setting hard ceilings on the company’s overall growth just to maintain desired ratios.

    1. JoJo

      Shouldn’t profit be shared as part of employee compensation in this structure? What possible incentive do they have to work in this structurd without it?

      1. Ben H

        Not necessarily, but it does make that process much more transparent.

        One way:
        You could say that Team X has a budget of 50, and to maintain a ratio of 50%, they need to hit a revenue of 100. Then, they could share in what ever budget they don’t spend, or whatever excess in revenue comes in.

        Bonus 1 = Budget Allocated – Budget Actual / # of employees

        Bonus 2 = Revenue Actual – Revenue Target / # of employees

        The nice thing about this budget style is that you can dynamically adjust the target revenue based on the actual expenses. Looking at bonus 2, this keeps you from paying a bonus on “excess revenue” on a team that ended having a ratio of 75%.

        1. JoJo

          Thank you, very helpful. Here, I could see a team going ahead and taking a risk/investing in one item or prmotion that would assist them in going well beyond their revenue target if it means they’re share will be in the form of a bonus. Otherwise, as described by the OP, not only is there a very good chance that raises will cause resentment if they’re given at all, but there is also a built-in incentive to NOT spend money to make money.

  23. animaniactoo

    OP, here’s the thing – aging computers need to be replaced to work effectively. But a newer computer isn’t going to magically increase the ability to pull in revenue *in that year* by the same amount as the computer cost. Efficiency has limits to how much improvement it can pull in. Meanwhile, each department is necessary to the health of the company overall, right? Take out one and the others suffer in some way – maybe just by not being a company that can handle issues X and issues Y for the company.

    So some departments are of necessity going to be less effective at generating additional revenue – but they’re all going to have the same needs for computers per person, which are going to cost approximately the same (except for the graphics/marketing department, but that’s another story) along with so much other stuff like paper and post it notes and so on. And rather than accepting that reality and spreading it across the company as part of normal expenses, this guy is saying “Oh! Too bad you’re stuck in the lower-profit department! You either get to suffer on old equipment or find some unicorn ways of pulling in more revenue to afford newer. Oh! Too bad the profit-margin is less on this work, you just can’t afford another body on that workload even though you’re all pulling enough OT collectively to justify another person!” Unless you’re in a winner department that is easy to increase revenue in and is less of a support position for other departments.

    Yeah. This is not just how to create conflict on your team. This is how to breed resentment between departments. Don’t sign up to live inside that.

    1. Gumby

      There are all sorts of reasons this sounds like a terrible way to work (if I wanted to worry at that level about company budget I would have a different job), but surely, SURELY, they get to amortize the costs of equipment over the expected lifetime, right????

      1. Theophania

        Kinda sorta, it’s complicated. In my company, capital spending is counted against cashflow in full the year in which it’s incurred and is “paid back” to the company via depreciation which falls under earnings over the useful life of the asset.

        Different countries have different capital thresholds and purchasing policies; for instance, we lease cars in pretty much every country except for Argentina, where the tax laws make it more cost-effective to purchase the cars. I’ve seen things like big screen TVs for cafeterias, iPads, commercial-grade coffee machines, digital cameras, docking stations for computers, and phone headsets come in as capital expenditures in countries where the threshold is RIDICULOUSLY low (like $100 USD). I just approved a request for a docking station today, in fact.

        1. CJ

          In the US, it spread the cost over several years as depreciation. Even if you can write it all off for tax purposes in the year of purchase, for “book” accounting be depreciated.

    2. CJ

      Old computers would have been depreciated over time, not expensed in the year that they were purchased. New computers would also be depreciated over time, and since they keep getting cheaper, it’s very possible that your quarterly net profit would actually go up with new ones.

      This would apply to a lot of equipment and software that would make you more productive, but the increased salaries would be in a different category.

      This is assuming the employer is tracking true profit and loss, not just looking at cash flow.

      1. animaniactoo

        Yes, but the point remains that when you have less ability to build profit *per person* in a department than another one simply due to the nature of the department and what it produces, the underlying costs for the basics *per person* remains the same. So the ability to increase revenue – even if you are depreciating the computers – will still differ among departments.

  24. LurkNoMore

    This is very similar to my company’s management style – not the purchasing aspect but each division, department or cell is responsible for their own profit and loss. It’s very transparent and you can figure down to the penny how much or how little profit you are contributing to the company.
    It gives management a quick overview of what cells are not performing, where management’s attention needs to be so losses don’t continue. Yes, your bonus and raises are tied to your group’s performance but isn’t that the way everywhere? If a company lost money the previous year, do they give the same % raises as they do after a profitable year?
    I’m not saying that this is a great management style and not sure it can be applied to the service industry but for manufacturing, this is a safe and reliable approach to insure the products you are producing are profitable.

    1. vanillacookies

      But at most companies, you bring in the profits first, and then distribute the raises second. It sounds like here, your raise gets approved, and then everyone on the team has to do extra work to compensate for the cost after the fact.

    2. ArtK

      How do they handle parts of the company that aren’t revenue-generating? How does HR rate, or IT?

      1. LurkNoMore

        A set percentage needs to be applied in your P&L that covers those types of expenses. These divisions are run as non-profit and any saving or losses over the percentage rate are distributed at the end of the year.

    3. Koala dreams

      It’s a common thing, yes. What gives me pause is how it’s presented. Usually the advantages that are presented are things like better resource management in a company, better oversight for management, or more cooperation between departments (if you have a system where departments charge each other for products or services). You want every department to meet their goals as a way for the company to succeed.

      Here, it seems like the management has abdicated and put the responsibility for keeping the goals at the individual employee level. The goal is independent teams rather than a well-run company. And yet, how independent can a team be in a large company? Not very, since you depend on the other departments, such as sales, to succed. Also, it’s difficult to keep a fair score on the profitability of the supporting departments, such as IT or accounting.

  25. Lucia Pacciola

    Huh.

    I always assumed that raises were supposed to follow increases in productivity. “I’ve been working above and beyond my current pay grade. It’s time for my compensation to properly reflect this.” That sort of thing.

    Similarly for departmental expenses. You get the premium Shutterstock account because you expect it to increase your productivity by a certain amount. Yes, your productivity goal should go up to offset the expense, but this is a fairly obvious business calculation, right? It doesn’t have to be some weird blanket policy? Or does it?

  26. Anonymeece

    This also seems horrible for non-managers. Say the workload is immense; everyone is working 70 hour weeks to meet it.

    They bring up, “Hey, we’d like to have more people to cover,” and the manager says, “Oh, no, because the workload would remain the same to meet the new goals then, you’ll just have to keep working 70 hour weeks!”.

    Ugh. That’s just… really bad.

  27. GreenDoor

    I’m an accountant and this is just not how it’s done. A solid budget factors in a realistic expectation of what your supply and overhead costs will be – ahead of time. A solid budget also predicts ahead of time what new employees may need to be hired and what kinds of exceptional expenses will be on the horizon (like overhauling the software system or purchasing a new vehicle). And a solid budget contains some kind of emergency/contingency allotment for the unexpected. Employees shouldn’t have to choose between purchasing a software or struggling with a broken down delivery vehicle or ignoring an emergency repair….and the opportunity to have a raise or hire a much needed new team member. This sounds like an awful place to work, where the owner’s only focus is on maintaining a steady profit. Run, indeed!

    1. The Man, Becky Lynch

      And you also see that your expenses are increasing steadily and that means you need to update your pricing needs to be adjusted. Then you raise your prices by a little bit and nobody flinches.

      If you let it spiral too long, putting it all on the employees shoulders, you bleed money in other ways, including in productivity and turnover, things that you can’t just cut back on most of the time and what keeps the business going at all.

    2. CJ

      I’m an accountant too, and know that you should amortize software and depreciate vehicles and other equipment over time. Since new would also be expensed over the next several years, the profit won’t go down because of these investments unless they are a lot more expensive than what the old ones were when you purchased them.

      Raises would be different, but you are looking at a profit goal that was set in the past. If you’re given a raise because your productivity has increased, that increase should have increased your profits so that you are already exceeding the profit goal. Therefore you can get a raise and still hit your net profit targets.

      If your profit goal increased with additional expenses, that would be difficult. But it’s the gross revenue goal that increases. Alison mentions setting revenue goals to cover expenses. This really just a way to set those revenue goals to cover expenses + profit. Obviously there has to be a return on your investment, which is the profit, are you’re going to put your money somewhere else.

      I don’t think the employer explained it very well to the OP, therefore they aren’t explaining it very well to us here. I’ve noticed in multiple comments that posters are mentioning the required increase in profits, when it’s actually an increase in gross revenue, which isn’t unreasonable.

      1. ACDC

        So let’s say you work in finance, or IT, or HR… how are you supposed to increase revenue for your organization if you aren’t responsible for anything customer facing that could bring up more revenue? That’s the part of this that seems to be missing from the equation for me.

  28. Tasha

    Reminds me of a former colleague who didn’t understand that humans were, you know RESOURCES; he only saw them as costs. And guess what department he worked in.

    1. The Man, Becky Lynch

      But I bet he values himself extra highly, right? Those ones are the best. Everyone else is just a number but he’s a genius who deserves to be swimming in pools of gold coin for all that hard work he does!

  29. Ella

    So instead of having one person – or one department of people – who are trained in finance and able to dedicate themselves to figuring out the ideal cost/benefit structure of running a business, they’re leaving it up to each individual team to make those decisions. Unless every one of your coworkers is an expert in business and finance I’d treat this as a pretty big red flag. Why in the world would Joe from the copywriting department or Sue from HR be better at making financial decisions than a company’s CFO, who presumably has been trained in the topic.

    1. CJ

      At old job as a tax preparer, each location had its own revenue goals. We were expected to substantially increase our revenue over prior years, because our department was no longer going to be subsidized by a different division.

      I have no idea how we were supposed to accomplish this, since we had a whole $300 advertising budget. Even if we had had enough advertising money, the company had made a conscious decision not to advertise in the Yellow Pages, which at the time was the main place people new to the area looked to find tax preparers.

      I understand what Alison is saying about revenue goals that would cover the expenses rather than having net profit targets. But this same job only at gross revenue.

      Our department consistently lost money, yet spent $50 per person per night more on hotel rooms then was necessary. We’d go to a fine dining restaurant where everybody had steak and expensive bottles of wine.

      A co-worker and I shared a hotel room, and none of the others did. We said we’d stay at a cheaper but still very nice hotel that basically shared a parking lot with the one the company had chosen. We were told we couldn’t because they wanted everyone in the same place.

      Our goals were set based on the teams salary. Each location was expected to make two and a half times total salaries. That seems reasonable on the face of it, because that was the only way to cover expenses. As in this letter, any races resulted in the expectation that Revenue would increase two and a half times. So the company’s profit went way up when money was spent on raises, and went down when it was wasted on fancy meals. (These meals were two nights a month for around 25 people each time. I’m not talking about a once-a-year holiday party that they want to be nice.)

      1. Clay on my apron

        “the company had made a conscious decision not to advertise in the Yellow Pages” – the decision about where to advertise would not be made by someone else if this was an *actual* small business and not a pretend small business. The CEO would make the decisions and deal with the consequences. In this scenario, someone else makes the decisions and you deal with the consequences.

  30. just trying to help

    This vaguely sounds like an episode of the Apprentice where teams were pitted against one another for resources. There also does not sound like exceeding revenue goals would stay within the team or simply convey to the head office. Run away.

    1. texan in exile

      I expect at least a 20% margin on that Greenland purchase, which means revenues need to increase at least ((Greenland price)+(additional overheads to administer Greenland))*1.2.

      Or more.

  31. Anon61

    I understand the employer to mean the “certain amount of profit” is a target they are giving and that target remains the same, not that profit must be the same as last quarter or last year, for instance.

    If your profit goal is $100,000, and your division shows a profit of $120,000 because of the increase in productivity, you could give raise to the team totaling $20,000 and still hit your net profit target.

    Same thing if one person quits and the work load is distributed between the remaining employees up to the amount of the former employee’s salary and benefits. (Of course it won’t be usually be that much, or the person would just be replaced.)

    Investments in people and in other assets such as software should be valuable to the company. Otherwise why are you doing the additional work or spending the money in the first place?

  32. Galahad

    This is how all (for profit) businesses work at some level. The P&L bottom line for each department does not distinguish how much contribution is from salaries and how much is admin expenses. When the department is losing money, cuts need to be made.

    Every department P&L is grouped to show revenue and expenses. Where the revenue is not obvious, there are accounting ways to show it based on internal sales to other departments based on some volume metric. For some businesses, they just group massive teams together with a mix of sales and support, for others, they expense one team for the services of another based on a fixed percentage or volume metric.

    The OP did not mention what level they were interviewing for. The interviewer discussing it this bluntly is not common at (non-director level) interviews, but highly appropriate for managers, senior managers and director levels. Bringing it up at a high level position is actually a very good thing, because it shows a lot of transparency and trust in the organization and in the person leading the department.

    It is the job of managers, however, to protect supervisors and rank an file employees from this level of P&L crap / stress, and manage team resources so that every employee can be the best possible at their job. Employees should not have to worry about what resource (or person) their deserved raises are coming from. That is the manager’s job. They only need to know their team’s performance goal, like any business.

    1. Ask a Manager Post author

      Of course at its most basic all businesses work this way — you have to balance out your expenses against your revenue and your revenue goals. But that’s not what’s described in the letter, at least not if you’re reading the nuance in it — this is “if you want a raise, your team as a whole will have to produce more work, but we make it really easy for you to decide on your own expenses.” That’s not what you’re describing.

      1. CJ

        I wish we had an exact quote from the employer. Raises are usually given because you already increased your productivity, which hopefully increased your revenue. So you should already be exceeding your net profit goals and wouldn’t have to take on additional work.

      2. Galahad

        IDK. Again, it depends on the level of position being interviewed for. I have definitely had the “talk” with managers reporting to me that “if you want to give Sally a raise, (or hire another person) you need to find where you will cut expenses or show the increased revenue to meet your targets”… and I have likewise heard managers advocating for more control over their own budgets “I should be able to decide without a budgetary review if my department buys the advanced software license instead of hiring a fancy degreed designer when a mid-level person is fine”.

        I worked for a year as a new director with nearly ZERO control over my P&L. It turned into horror power struggle situation that I had to resolve firmly. If an interviewer said the same things to me that OP heard, it would have been an amazing “yes!” to the job offer and company. It is a benefit when you are the manager. It is all about what level OP was interviewing for.

        The weirdest part of the OP’s letter is the implication that a person decides upon their own raise… that doesn’t happen unless you are the owner, so I assumed that it was a mis-understanding or a wording blip by the OP.

        1. Working Hypothesis

          The thing is, it quite possibly is neither, but a way of rubbing the guilt in the faces of anyone who is considering asking for a raise. “If we give you a raise, ALL YOUR FRIENDS WILL HAVE TO WORK HARDER! AND THEY’LL ALL KNOW IT WAS YOUR FAULT!!! Now, do you *really* want me to go ask for that raise for you?”

          Oh, and in case that wasn’t enough, there’s a heavy implication of, “If we give you a raise, we will take it out of your work-life balance even more than we already do. Every time,” just in case there’s somebody desperate enough or self-centered enough for the guilt trip not to work.

  33. ArtK

    It’s just good business: Internalize the profits and externalize the costs. [/sarcasm]

    Run, run away.

  34. Council'd

    I was learning a little about my new job and it sounds like it historically used to be run more or less like this. The founder just wanted to do research and was advertised as hiring academics more or less if they wanted to work here, provided they could bring in enough income to cover their salary. It was a lot less like a functional business and more like a cluster of freelancers calling themselves a company until about the ’80s, but I’m sure it worked really well for some people.

    A thing to keep in mind is that it’s not necessarily a ton more work to make a little more money in some situations and that sometimes with innovations or processes, profits can increase with less effort, ex: larger contracts/better communication systems/more clearly lined out policies or expectations/firing a problem account or charging them more/whatever. I would imagine that there are some teams there who regularly give out raises because they’ve come up with a system to excel, though I doubt it’s the norm, and there’s no real way for you to gauge if the team you’ll be joining operates successfully under this set up.

    It also may be that while he’s describing things this way, there’s a lot more thought and budgeting going into the process, in that there’s usually money built into their game-plans for $500 in software and $10,000 in raises and $150/month in office supplies and $2,500 for miscellaneous expenses. But I don’t know how you’d approach this to figure out if that’s the case or if they’re operating on a shoestring.

    1. Council'd

      *Caveat: I don’t deal with purchasing anything, so I just made up these numbers on the fly and expect that they’re wildly unreasonable lol

    2. ACDC

      A non-profit I used to work at operated this way with new hires. They would tell candidates, if you can get funding we can hire you!

  35. Bostonian

    This is a really good example of how Glassdoor can be used to provide supporting evidence for suspicions/concerns/questions you may have based on the interview. This company’s system seems to in itself set up employees at a disadvantage when it comes to raises and promotions, so reading reviews about unfair compensation makes sense. If it walks like a duck, quacks like a duck…

  36. McThrill

    I worked as a designer for a toy company, and one of our biggest licensors (one that owns a LOT of hot children’s licenses) was set up this way. Each individual license of this company had to compete against the others to make a certain amount of money on licensing deals, which made meetings with the licensing department frustrating as hell because less popular licenses were always trying to undermine the more popular licenses that would actually, you know, SELL our products. It made what should have been a simple “X is popular, we’d like the license for X” business deal incredibly frustrating for both companies involved.

  37. Phillip

    Hard to imagine this process not being more complicated to administer than a more typical one, which makes the whole “less red tape” claim land somewhere between questionable and irrelevant. Everything is gonna be more complicated than it has to be.

  38. Beatings Will Continue Until Morale Improves

    RUN! I worked for a small business with a similar structure, though it wasn’t organized and transparent as this. Basically if we needed new equipment to do the amount of work expected in a safe manner we could expect to forgo raises and work more hours. The only way to make more money was to work yourself to the bone and even that wasn’t guaranteed. We were told if we got a raise then we were taking money from other employees. It’s a pretty sick way of doing business.

  39. Existentialista

    LW, I would suggest to you some of the best advice I received as an employee. If you imagine you are hired contractor, running your own one-person business, would you take this company on as a client? You are offering your services to them for a price, and as an individual you want to make sure you yourself get the highest profit at the lowest cost – does this gig enable you to do that for yourself? Would you accept this company as a client? If not, you shouldn’t accept them as an employer either.

  40. LadyCop

    Okay so I think everyone on the team should expense new Ferraris. There apparently isn’t any penalty to the team (other than the manager?) for missing sales goals and if it avoids all red tape why not? Might lose your job but that car will pay a lot more bills!

    Only a little facetious here because that’s the kind of bad business logic this is.

  41. pentamom

    If they make you an offer, when you decline, explain why. Tell them that you can’t imagine the low job satisfaction of an environment where you have to earn the tools to do the job properly.

  42. consultinerd

    In certain professional services/consulting areas, this is a totally normal and functional way to do business, and many of the comments here are raising objections that practitioners in these industries have figured out just fine. This is how both my current and past companies have been run, and our IT/HR people aren’t screwed over, our teams don’t backstab each other over paperclips, and employees aren’t guilt-tripped over taking a sick day or buying printer paper.

    Each department has profitability goals (determined by factors like how competitive their market is, how much value they provide to other departments beyond their direct profitability, etc.), and if they increase staffing or give raises, revenues need to increase accordingly in order to meet those goals. Nobody’s head rolls over missing a monthly/quarterly profit target, but annual profitability (partially) determines the size of each department’s bonus pool, and annual/long-term profitability is a major factor in advancement and compensation for departmental leadership, including opportunities to purchase equity in the company as a whole.

    Whether or not LW’s interviewer was raising a red flag or simply being transparent depends on a couple factors:

    – Is LW fresh out of school and looking for their first job (where they should be insulated from this kind of thing), or are they more experienced and interviewing for a mid-level/more senior position where they may soon be part of the leadership team that needs to take these factors into account?

    – Does the company have different departments with well-defined and separated markets (e.g. East Coast vs. Midwest vs. West Coast teapot sales, or teapot decorators vs. metal teapot engineers vs. ceramic teapot engineers?) or are they heavily overlapping and therefore incentivized to compete with and undermine each other? Similarly, do departments have enough autonomy to increase their revenue by selling new services/capabilities to their clients or increasing their prices (which they can justify to clients based on, e.g., the added value of their new teapot handle specialist on the team)?

    – Does the company provide significant performance bonuses for teams that meet or exceed their profitability targets, or do you get a pat on the head and a $10 Starbucks gift card?

    1. Evergreen

      Just wanted to second this post: this is a common arrangement in engineering consultancy (usually where the insurance involved in setting up one’s own independent small business is prohibitive, or it’s easier to sell a group of interrelated but not overlapping services rather than each individually).

      These questions for the OP pretty much hit it on the head: can be great places to learn and develop if you’re quite junior, but at middle management the sales component becomes very prominent. Some people really do thrive in this environment though! The autonomy to develop new services and products can make it a much more rewarding career than in larger less agile environments – if you can keep sales and revenue in control

  43. Argye

    You know, at a certain level, this is exactly how academia operates. I’m now reevaluating some of my experiences.

  44. t

    This sounds a little like one of those Holocracy-type organizations that are really flat, so they distribute management functions to the teams. In some cases those are wildly successful, and in others absolutely horrible. I’d try to get more information from people who work there to see what it’s really like.

  45. Jack Balfour

    “You’re like a business owner! Except that I still have all the real decisionmaking power, and I keep all the profit.”

    So, not anything like a business owner, then. How stupid do they think people are?

  46. Sharikacat

    This feels like the most basic, non-thought-out idea of revenue management ever: The boss wants you to deliver exactly $X into his hands every month and doesn’t care how you manage your finances along the way. There are so many nuances of budgeting and revenue management (and general management, for that matter) that he doesn’t even seem to care about. “Less red tape” means he doesn’t want to get involved with any decision-making and only wants to see a consistent stream of $X each month.

    1. Working Hypothesis

      Well, of course they want that. That’s what any business owner wants, if they’re being honest about it. Most of them realize that they can’t ethically (or pragmatically) have it, though, and don’t set up their company in a way which demands it from their staff.

      People who expect a steady income stream from their company without having to bother their pretty little heads about managing the revenue stream should buy stock in established companies and not get involved in running them. (I frankly tend to think that this shouldn’t be possible *either*, because I’m not fond of economic models which allow money to make money without any input of value out of the body or brain of the individual, but at least its considered legit by the economic structure we’ve got at the moment, unlike dumping the burden of running your company’s finances on its entire complement of ICs.)

      1. Sharikacat

        Makes the guy look less like a business owner and more of an investor. If we were to frame it that way, does that change how we look at this scenario? The only real difference is then that the “investor” is demanding a specific return on the investment?

  47. CorporateDroneLiz

    If someone quits or gets fired, do the revenue goals go down to accommodate the reduction in headcount? My spidey senses are telling me no…

    Honestly, this sounds like my last company (albeit more extreme); the annual revenue goal set each year was pretyt much unattainable and based on data points like “we’re going to hire 100 people this year!” Never factored in attrition or client fall off. I don’t miss that place at all haha.

Comments are closed.