February 19, 20—

Nick Guiscard
Vice President
CareerLab
11603 Banner Drive, STE 1600
Houston, TX  77500

Dear Nick,

This is a response to the events of the last several weeks, and to your e-mail requesting a change in your compensation.

As promised, I spoke with management consultant Mike Gaggenau about the issue.  Mike helped me get the company started in the early 80s, and he has helped me with business planning issues ever since.

I don't know the details of Mark Hamilton's situation—if he's made a personal investment in the company—possibly he did.  In any case, Roth & Gjelten is a 59-year-old company with 55 offices worldwide, and they're in an entirely different industry. Their fees are also double what ours are (30% of first year's compensation).  They are certainly better capitalized than we are.

A more fair comparison would be with our competitors.  How much do DBM consultants make?  Contractors make $30-60K.  Consultants earn $45-90K.  At least that's what I'm hearing.

CareerLab is an S-Corporation.  That means we don't retain earnings.  We spend our revenues in salaries and improvements to the company.  We don't build assets the way a C-Corporation does.  This is perfectly normal; in fact, an S-Corporation with a high net worth is considered to be poorly managed.  And this is how most professional firms are structured.  They exist primarily to pay salaries to the professionals in the firm.

Regarding your salary: You said Mark Hamilton must have been a better negotiator than you.  I don't think so.  First of all, we don't know 100% of his contract—what pound of flesh they've extracted.  I believe we only know part of the story.

In fact, you negotiated a better deal than any of our other consultants ever has. Trevor reminds me that in his preliminary discussions with you, before you joined the company, he told you that you could expect $50,000 to $75,000 in the first year. I might have said $75,000 to $100,000, but nothing more than that.  Although you earned less than Trevor and I, you earned more than Harry, who started in the company at the same time as you did.  And you have the best benefits package of anyone in the company, including me.  You have more disability and dental insurance, and a bigger life policy than I do.

You have made a career change, and as you know from your experience with our clients, anyone who changes careers can expect to step back in salary, at least for the first few years.  Then they usually recover and often exceed their former salaries.

Regarding your $100,000 guarantee: CareerLab simply doesn't have the resources to do that.  We operate 100% out of cash flow, so if the revenue isn't there today, we have no way to pay salaries.  It doesn't have anything at all to do with "believing in you" or "not believing in you."  It has to do simply with cash in the bank.  I can't even guarantee myself a $100,000 salary, unless I get out there and do billable hours.  Whether it is a law firm, a CPA practice or a doctor's office, everything depends upon billable hours in a professional services firm.

I don't think you fully realize how small CareerLab really is.  You came from Oilfield Services Corporation, a $6.5 billion company with 50,000 employees operating in 65 countries.  We are a six-person company, a "Mom and Pop" shop—and there's a big difference.

Still, you chose consulting in a small firm, over another corporate job, for some very definite reasons.  Among them: 

1. To remain in Houston.
2. To escape big company bureaucracy and politics.
3. To be your own boss.
4. To use your master's degree to do something that has meaning and helps people.

Those reasons are still valid.  

No one finds it easy to transition from a secure big-company paycheck into an entrepreneurial environment.  I have several friends who've made the transition.  All say it was very difficult, but it's the best thing they ever did, and they would never go back to the corporate world.  Among them:

• Herb Parsons, ex-IBM
• Janie Boscawen, ex-Conoco
• Lindsey Clanton, ex-USAF

Lindsey says, "If I'd known it was going to be as hard, I wouldn't have done it . . . and I'm thrilled that I did it." When I asked him why, he said, "Because of the way I can live my life now—the flexibility and independence.  The money . . . and I love the work I do."

The upside of this kind of business is high.  You've had a very successful first year.  According to Herb and Lindsey, it takes a strong 3-year building period to establish a consulting office.  In addition, it is probably a 50 to 60-hour work week for the next two years.

Let me tell you how you can take your success to the next higher level.

The following is not a promise, contract, guarantee or anything of the kind-but simply a proposal for discussion.  These are only the beginning sketches of my ideas.  I'm not promising this until, and unless, we work out the details.  As you know, in order to change the terms of your employment, we have to amend or replace your employment contract in writing.  This is subject to change.  But here is my thinking:

What I can do, Nick, is make you an owner in the Houston office.  Here is what I propose:

• To give you a ten percent (10%) interest in the Houston office starting in 20- (effective now), and then 10% more each year for the next seven (7) years, for a total of eighty (80%) ownership.  That means that after five more years, you would own controlling interest in the Houston operation (60%).  I would retain 20% interest indefinitely.  You might not be a shareholder in CareerLab, because that is a complicated legal process, but if not, I would guarantee these rights under a separate enforceable contract.  
• In addition to ownership interest, you would receive a percentage of net profits equal to your ownership share, beginning in 20—.  For example:  If you own 20% of the Houston office on December 31, 20—, you receive 20% of the Houston office's net profit after tax, payable first quarter (Q1) 20—.;  That constitutes an immediate pay raise.  
• If the Houston office loses money in any two (2) consecutive quarters, you would not get the additional 10% ownership that year, or a split of after-tax profit.  
• You would have access to the Houston P/L and balance sheets as soon as we can separate out Denver's costs and make them available.  
• I would retain ownership of the company name, copyrights, trademarks and all intellectual property but would license their use to you.  
• When the lease comes up for renewal in another 2½ years, you would sign jointly on the lease, or renew the lease under your name.  
• Your present compensation package would remain the same, but the potential net profit after tax makes this a substantial raise.  
• If you leave the company at any time during the next five (5) years—that is, before you own controlling interest in Houston—for any reason except death or permanent disability, this agreement would be null and void, and 100% ownership would revert to me.

Nick, I am certainly aware that you are concerned about your personal cash flow now.  As you said, "I'm going broke."  That is a strong statement.  

Joan Kearns, our investment manager, could help us here.  She could help you see whether or not this offer really makes sense from a financial point of view.  Your finances are your own personal business, but I would like to help any way I can.

I brought you into the company because I wanted you to be successful.  I would have never recruited you if I didn't think you had what it takes.  I'm approached at least a dozen times yearly by people who want to join our firm.  Ninety-eight per cent of them never get an interview.

We are in a down market, and we have to reposition ourselves to take advantage of the skills and experience we have.  I still believe you can succeed.  Oilfield Service Corporation will always represent a good book of business.  Even cut in half to $150,000 per year, that is a good base to work from.

Lindsey Clanton also mentioned "life circumstances."  Sometimes it's just not possible for a deal to come together.  If that's so, please let me know that.  If you're more comfortable working in a larger organization with a monthly paycheck, you must let me know that.  I would understand. Several of my consulting clients have gone back into corporate life simply because they preferred the big company feel.

A couple weeks ago I asked if you wanted to talk to Frank Roldan, Ph.D., and you reacted strongly.  You said something like, "I've got a master's degree in psychology myself—I don't need to talk to a psychologist." That seemed a little short-sighted.  We don't use Frank as a head-shrink, but as a business consultant.  Nick, we're such a small organization that we don't have a human resources director.  Frank is like our HR director.

One of the things small business people often experience is lack of support.  It gets lonely.  "The Harvard Business Review" mentions a phenomenon called "The Loneliness of the Entrepreneur."  I've found that in moving ahead on my own, it's nice to have understanding friends, friends who can occasionally put me back up on my horse. Frank is the kind of guy who can do that.

I met Frank in 20— while working for DBM.  He did their testing. We became friends.  I've used him many times over the years as a sounding board, especially when business was down.  He is a master at getting me re-motivated and focused on the correct thing.  Having been in his own consulting business for many years, he's been there himself.

I've asked Frank to meet with you and me when you come to Denver.  I scheduled him for 9:30-11:30 on Tuesday morning.  I think he could help us get some issues out on the table and really get some things resolved.  Harry, our most senior consultant, has worked with him.  Trevor and I have resolved some incredibly difficult issues with Frank as facilitator.  Trevor and I have never left a meeting with him where we both didn't feel better.

Meeting with Frank isn't a requirement, but it's a strong recommendation.  Even if you don't need it, I think it would be good for me.  I'd like his assistance in working through some of the issues we face.  What do you think?

This is all I have right now.  I'm looking forward to seeing you face-to-face the week of the 26th.  I'll be interested in hearing your reactions to this letter as soon as you've had a chance to review it.

Best regards,

William S. Frank