In the real world, talent is usually paid by the hour or by the piece. (As a writer, I’m usually paid by the piece.) A fixed price is set for each unit or hour of labor, and if the business does well, the talent might get a raise someday. This is called a salary, and benefits may be added like insurance and a pension. Journalists have lived like this for a century, moving job to job for higher salaries.
In the Internet world, talent has often been held with equity. William Shatner’s contract with Priceline is a good example. In exchange for cutting some ads endorsing the reverse-auction service as something that was going to be “big, really big,” Shatner took home some stock options. After Priceline went public, the options were listed in the company’s SEC filings, and CNBC had great fun calculating the fortune he’d earned (assuming he exercised the options) on his fee (accompanied by the “Star Trek” theme.)
These are extremes on a continuum of remuneration. They won’t work for everyone. And on the Internet, where even next week isn’t guaranteed, there are big risks in both extremes for site managers. Salaries can eat up a start-up, and stock options not only put enormous pressure on you to go public prematurely; they dilute the holdings of investors and founders. (After going public, of course, everyone’s performing for Wall Street and not the long-term; that’s another risk.)
I’ve got many friends working in sales, using a compensation model called a draw and commission. A set weekly fee is given each week, and a commission level is set. It could be 1 percent on steel pipe, 6 percent on real estate, or 10 percent on knives sold door-to-door. When the commissions exceed the draw, the salesman gets a bonus. If they drop below the draw for a time, the salesman starts job hunting.
Book authors have yet another model. When I’ve written books, I’ve gotten an advance and royalties. The advance of $15,000 for a computer title (millions if you’re the president or his intern) has nothing to do with the cost of writing the book. They’re a bet by the publisher, and an assurance to the writer, that the publisher will do some marketing of the finished product. (When the total royalties exceeds the advance, the author starts getting checks.)
Publishers hate paying advances, but they do enjoy sending royalties. Royalties mean, “I’m making a ton of money, you can have a few pounds.”
These aren’t the only compensation models, of course. Movie stars often get “points;” a percent or even a half-percent stake in a film’s gross, in exchange for a lower salary. The argument in Eisner vs. Katzenberg was over the life of Katzenberg’s points (which included merchandise) after he broke the contract by quitting to co-find Dreamworks.
I bring this up because some friends have asked me how to pay writers on their sites, and some writers have asked me how they can get “equity” in what they do. The Internet is the most measurable medium and the most imaginative. That extends to how you pay, and keep, your key people. It’s a clue that will draw you top talent but won’t cost you your business.
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