D
Diffus
Guest
Situation: Joe was asked to come to work for XYZ Roofing company as a salesman. The compensation offered was 45% of gross profit.
Initially, gross profit was defined as revenue minus labor costs minus materials costs. However, not longer after Joe joined XYZ Roofing, Mike, the company's owner, announced that he would begin keeping 7.5% of revenue to cover overhead expenses, such as telephone, supplies, advertising, etc. (The 7.5% was based not on actual or anticipated expenses, but rather on Mike's survey of what his competitors were doing.) Joe's compensation was thus effectively reduced to 41.85% of gross profit.
Joe is an accountant by training (he sold roofs after being
downsized). He knows that the term "gross profit" has a very specific meaning: It's what's left over after subtracting the cost of the goods sold from revenue. Overhead expenses come after gross profit. Mike is not an accountant by training; he chooses to define gross profit as what's left over after all expenses associated with a job, including the overhead allocation, have been deducted. Mike has altered the terms of Joe's compensation not by changing the commission percentage, but by changing the definition of the basis against which the percentage is applied.
Questions:
1) Has Mike violated the terms of the (unwritten, by the way)
compensation agreement he made with Joe by chandging how he defines gross profit, from revenue minus labor minus materials, to revenue minus labor expenses minus materials expenses minus the overhead allocation?
2) If so, what recourse does Joe, who is now no longer with the
company (Joe resigned to take an accounting job), have?
Thanks for any advice.
Initially, gross profit was defined as revenue minus labor costs minus materials costs. However, not longer after Joe joined XYZ Roofing, Mike, the company's owner, announced that he would begin keeping 7.5% of revenue to cover overhead expenses, such as telephone, supplies, advertising, etc. (The 7.5% was based not on actual or anticipated expenses, but rather on Mike's survey of what his competitors were doing.) Joe's compensation was thus effectively reduced to 41.85% of gross profit.
Joe is an accountant by training (he sold roofs after being
downsized). He knows that the term "gross profit" has a very specific meaning: It's what's left over after subtracting the cost of the goods sold from revenue. Overhead expenses come after gross profit. Mike is not an accountant by training; he chooses to define gross profit as what's left over after all expenses associated with a job, including the overhead allocation, have been deducted. Mike has altered the terms of Joe's compensation not by changing the commission percentage, but by changing the definition of the basis against which the percentage is applied.
Questions:
1) Has Mike violated the terms of the (unwritten, by the way)
compensation agreement he made with Joe by chandging how he defines gross profit, from revenue minus labor minus materials, to revenue minus labor expenses minus materials expenses minus the overhead allocation?
2) If so, what recourse does Joe, who is now no longer with the
company (Joe resigned to take an accounting job), have?
Thanks for any advice.
