III. Navigating Profit and Contribution Distribution in the HIEM Hierarchical Distribution

​

Introduction: The Existential Problem of Distribution​

Initially, we are faced with an existential problem of distributing votes, percentages, and profits among participants. In the new economic model, distribution is never equal, as there is always a variance in percentage shares.

HIEM Hierarchical Distribution and Its Underlying Principles​

In the previous chapter, we explored the concept of HIEM Hierarchical Distribution, which permeates the entire system of this model. In this section, I will explain:

• How this distribution is carried out
• What formula is used
• Which principles underpin this approach

Since we value empirical experience and clear examples, let’s consider the following scenario.

Hypothetical Scenario: Stages of Team Growth and Distribution​

Imagine that at the inception of the company, one person joined, effectively becoming its founding “driving force.” After some time, two more people joined. Later, the company hired three additional employees. (For simplicity, we’ll use a classical hierarchical structure of 1-2-3-4, where 1 is the leader, and subsequent members are arranged step-by-step in a hierarchy based on their roles.)

Toward the end of the project, four more members joined. This team structure completed the project, achieved success, and earned a profit.

Now, the key question arises:

How should this profit be distributed among the participants, given that their contributions varied at different stages of the company’s development?

• Those who joined later contributed less, so their share should logically be lower.
• However, there’s a possibility that they could make a more significant impact on the company’s growth than the original team members.

The Core Challenge of Value Assessment​

While a weighted distribution method could be applied (see reference footnote), this raises issues that might lead to disputes and dissatisfaction. This brings us to the core question:

Who decides the value of each person’s contribution?

If everything is initially quantified in specific numbers, such as investments, it’s not an issue. But what if we’re talking about labor contributions? How do we assess and measure them?

For example:

• A programmer who initially wrote thousands of lines of code that were later rewritten by a new generation of programmers.
• A lawyer who conducted successful negotiations in the early stages of the company’s formation.

How do we evaluate their contributions? Although they didn’t create anything tangible, does it mean their work was unimportant? At that time, it might have significantly advanced the company, but now it seems insignificant. Who should take all this into account?

• The employee who believes the company would not have succeeded without them?
• Or a new manager who joined later and propelled the company far ahead, justifying their current position?

The HIEM Hierarchical Distribution Model: Addressing Complex Distribution Issues​

The new economic model, HIEM, considers these nuances and encourages participants to think through many aspects of distribution from the outset. For newly joined employees, the HIEM Hierarchical Distribution opens up opportunities to occupy positions previously held by senior staff, and subsequently, to reach leading roles, ensuring the highest profit margins from the start of their tenure.

Let’s revisit the earlier example: Participants should assess the importance of upcoming negotiations in advance and decide when exactly to bring in a lawyer, ensuring their services are most effective and the company doesn’t overpay for them later on.

Founders at the company’s inception have the flexibility to make such decisions. For instance, it may be advantageous, according to the HIEM Hierarchical Distribution, to initially hire a few qualified programmers to improve the code, placing them in the 7–10 ranks of the hierarchy. With successful performance, they can move up, thereby increasing their profit share.

Determining the Distribution Model and Strategy​

Moreover, the founders should predetermine the distribution model and select a strategy. The initial HIEM Hierarchical Distribution sets almost equal percentages for all participants, minimizing differences to within 1%. This is designed to create a meaningful voice in the voting system, preserving hierarchy with minimal differentiation. Such a model provides nearly equal equity participation regardless of when employees join.

However, one could opt for a higher percentage, which would increase the inequality of distribution. For example, if the company’s founders decide on a 5% profit distribution coefficient (footnote, calculations), it benefits those who joined in the early stages but is disadvantageous for those who joined later.

Strategic Considerations for Effective Resource Allocation​

Thus, the strategy could be to invite top-tier specialists with high-profit percentages during the formative stage, when they can lay a strong foundation for the company. Later, when the business is fully established, employees with lower profit percentages can be hired, with limited expectations for innovation or transformation in an already mature business.

However, this does not mean that if the initially chosen strategy proves ineffective and the company faces the need for new innovative development by attracting employees with lower profit percentages, it will be deprived of this opportunity. The mechanism for evolving from such a point is already provided—by creating subsidiary companies where new development starts from a new bifurcation point, considering the company’s previous successes and open prospects for growth and the implementation of innovations.

 

[FoLi]

You told us a little differently.

 

[HIEMit]

You told us a little differently.

It can't be. I roughly stated this in our previous discussions, only it was in brief. And now it's a little more detailed. There are minor differences in the previous article from what I said earlier, but it's the same ideas here.

 

[FoLi]

Yes, of course, I had all of your written text before. I just didn't know some of the details.