Double Dipping Doesn’t Work

Occasionally someone will think they found a cash vs. non-cash loophole in the Slicing Pie model. What if, they ponder, instead of not getting paid and adding two slices per dollar I invest cash in the business at four slices per dollar and then draw out a salary in the same amount?

For example: Anson is worth $50 an hour. He works an hour and is not paid thus contributing 100 slices to the Pie. What if he puts $50 cash into the business for 200 slices in the Pie and then draws the $50 back out of the company as salary? This would mean he gets twice as many slices and, in effect, doubles his equity!

Nope.

There are several reasons why this does not work in Slicing Pie.

Lump Sum Payments

The first reason is that drawing money from the company during the Slicing Pie stage is deducted against cash contributions first then non-cash contributions. So, in the example above, Anson has made two contributions. The first is a $50 cash contribution which has not been spent and, therefore, does not convert to slices in the Pie. The cash would be held in the company account until it is needed (see: The Well) The second is an unpaid hour of work which contributes 100 slices to the Pie. When he draws out the $50 in cash the deduction comes from his previous cash contributions before it applies to non-cash contributions. So, taking out $50 is simply taking his money back. This is called a “Lump Sum” payment. After the cash balance is reduced to $0, the hour he worked is left unpaid which is 100 slices in the Pie.

Inefficient Use of Funds

The second reason it doesn’t work is that putting cash in the company as an “investment” and then drawing it out as “compensation” triggers taxes, payroll expenses, and administrative costs that are a waste of time and money for the business. Even if, as a startup, you aren’t processing payroll and just writing checks (which could cause other problems), you still have the added administrative step of writing a check to yourself which is still a bad practice. Businesses should make good decisions when managing money and this kind of robbing Peter to pay Paul behavior should be tolerated.

Gaming the System

The third reason this doesn’t work is that it is essentially an attempt to game the system to benefit one person at the expense of others. This is a moral issue and even if the other two problems above didn’t exist, this kind of behavior would lead to termination for good reason in which case a certain portion of the slices would be removed according to the Recovery Logic of Slicing Pie.

Not Gameable

There are multiple ways Slicing Pie prevents one person from taking advantage of others by trying to trick the system. The Slicing Pie formula simply reflects the logic of fairness based on facts. Tricks aren’t facts so tricks don’t work. Put facts into the model, get fairness out of the model.