Which P&L Do You Want To See?

Steven Cesare, Ph.D.

A business owner from California called me the other day to talk about designing an incentive system for his Tree Services team. These requests are becoming quite popular as a strategic hedge against runaway wages currently in demand. Companies cannot, and are not, keeping key management personnel engaged and productive anymore, by passively distributing 5-7% annual salary increases, thinking anachronistically that a pay raise of that size is somehow rewarding, worthy of continued employee retention.

It’s not.

By way of parallax, owners stubbornly refuse to raise billable rates to their customers, while concurrently maintaining denial that their employees are truly motivated, working to their potential for a wage rate not commensurate with rampant inflation, rising interest rates, and real insecurity. Unbeknownst to the owners, employees are making demonstrable adjustments by working fewer quality hours, being less inspired, with reduced productivity, as they attempt to perceptually balance their actual effort given to the company, in exchange for the insufficient pay they receive from the company. More on this topic in a future posting.

As a capitalist, I am always enthused when an owner limns enlightenment by migrating from static pay rates to discretionary pay plans. Traditionally, common discretionary pay plans focus on easily discernible criteria like increased revenue, improved staffing levels, better gross margins, and/or aggressive customer metrics (e.g., renewal, diversification, saturation), predicated on a rolling three-year average benchmark.

Back to the avocado state. With that framework resolutely established in my Adam Smith-like arsenal, I instinctively asked the business owner for a copy of his current year-over-year Profit and Loss Statement as a premise for determining his company’s baseline metrics, upon which the desired bonus program would be designed. Little did I know at the time, the owner’s response to my pedestrian request was a question that I had never heard, thought about, or anticipated in nearly 40 years of human resources experience.

“Which P&L do you want to see, Steve?”

As a by-product of my risible personality, I am all-too frequently tested by others’ attempts at incisive humor to catch me off guard, awaiting a witty, rapier response. Not this time. I was straightforward; in the moment.

“What do you mean, which P&L do I want to see?”

“Well Steve, I have two P&Ls. One for my Accountant and one for my Attorney.”

“Of course, you do. Okay. I’ll bite. Why do you have two P&Ls?”

“Well Steve, I went through a disastrous divorce a couple of years ago, and my ^%$&**# ex-wife lied to the judge who decreed that I have to pay her spousal support based on my personal income and my company’s net profit. So, I have two P&Ls. One that I keep for my Accountant, and the other I keep for my Attorney.”

“And how are they different?” I dared to ask.

“The Accountant version is correct. But, the Attorney version has me not making any money, since I route my ‘salary’ through the P&L under the guise of work-related reimbursements instead of income. With less income, I can pay my *&^%$#%^ ex-wife a helluva lot less spousal support each month, Steve. That’s the one I show her Attorney when they try to re-negotiate every six months and rip me off for more money.”

Hello Adam Smith? Is that the benchmark metric you were thinking of? Me neither. Thanks, Adam.

After my sincere, obligatory admonishment regarding federal and state tax fraud, tax evasion, and possible jail time, I told the business owner to never call me again.

So far, neither he nor his ex-wife’s Attorney has done so.

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