Companies of all sizes struggle to find new workers and to keep them for the long term. It’s been this way for generations, and young people today are no different. What has changed over time are the perks and incentives available to offer employees that make them accept a job and/or stay put. Some of these are quite extravagant, so how does a private organization compete?
Some of the popular perks offered by large companies to keep employees happy include unlimited PTO, free lunches, onsite childcare, etc. Often, organizations with smaller staff and budgets struggle to provide similar extras. Also, when a company has shareholders and a corporate structure, they include stock and profit-sharing as long-term incentives to stick around. Luckily, there are programs out there that allow payouts over time, even in privately and family-owned home service businesses like yours. Offering employees some sense of ownership in your business with these programs is an attractive reason for them to commit for the long run.
What can we learn from companies that successfully implement stock and profit sharing for their employees?
Companies doing it right
Let’s look at what a few successful companies offer their employees.
Some companies have been using profit sharing as employee motivation for a very long time, including Procter & Gamble, whose program dates back to 1887. They calculate a share percentage based on salary, tenure and annual profit. This is a traditional method of dividing profits, but it’s still working for them and for other old-school businesses.
In the airline industry, we see a couple of unique approaches. One standout shares a percentage of its substantial profits. The calculation changes according to their total profit with higher profits producing higher percentages paid. This initial calculation is then divided according to the total compensation of individual, eligible employees.
The profit-sharing plan at another airline extends to the entire company instead of a select group. Based on net income, base salary and hours worked, each employee feels the benefit of the company having a good fiscal year. As a result, they have fewer problems with employee retention than others.
Not only do well-established companies offer profit-sharing plans, but newer ones also see their value. Starting as soon as they were profitable in 2016, one start-up sets aside money for its employees to cover three month’s expenses, along with equity, taxes and charitable donations. Plus, cash bonuses based on employee tenure and company profit appear in paychecks twice a year.
How the best companies in home services and skilled trades get it done
When offering stock incentives to employees, home services organizations largely follow these guidelines:
• Stock offers begin by including the top 25% of performers and grow over time to include the top 50%.
• Tenure by an employee is required to start earning returns. The industry average is four years before an employee is considered vested.
• The stocks only pay out to employee holders if the business sells. To receive the payout. To promote retention, you have to still work for the company in order to collect.
• The larger businesses and those with the best-developed programs in the industry are adding milestones in addition to the time and tenure requirements to own stock.
Profit sharing looks a little different than the stock plan:
• A profit-sharing incentive is typically offered to the entire or majority (75%+) of company employees once they pass a probationary period.
• Profit sharing isn’t always a standalone program because it’s often combined with stock.
• Typically, payouts start with a pool of net profits and are distributed by tenure, salary, milestones or a combination of all three
• Milestones applied to profit sharing usually combine personal or departmental goals with overall company financial goals.
• The best companies pay profit sharing quarterly, not annually.
Best practices for dividing stock and profits with employees
From these examples, you can get some ideas for offering stocks and profit sharing to your employees, which can be applied no matter your organization’s size.
1. Keep it simple! The number one mistake made by companies of all shapes and sizes is to overcomplicate the formula and systems used to calculate stock and profit sharing.
2. You don’t have to stick to one factor when determining how stock and profits are earned. It’s okay to include multiple factors, such as applying milestones to make incentives align with business goals (assuming you keep it simple).
3. Combining long-term and short-term incentives is an effective way to drive the behaviors and outcomes you want.
4. Think about how to structure your program for the entire company and not just a select few.
You may not see an obvious way to implement these programs or anything similar in your organization, but we promise it’s not that difficult to implement a stock or profit-sharing program, even on a smaller scale or at a privately held company.
Phantom stock and profit sharing through Reins
Granting equity as an independent business has never been easier. In fact, you can start your journey to recruiting and retaining key employees in five easy steps. It starts with a free consultation with a Reins specialist, who will explain the features of our stock and profit-sharing plans and help identify the one that best meets your needs.
