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Is your company a candidate for a value-boosting profit- or ownership-sharing plan?

February 23, 2022

Is your company a candidate for a value-boosting profit- or ownership-sharing plan?

Synopsis
7 Minute Read

Employee share ownership plans (ESOPs) and employee profit sharing plans (EPSPs) help protect and also grow the value of your business.

In these unpredictable times, many business owners are asking themselves how they can balance two important goals: protect the business and team, while also growing the ultimate value of their business.

Playing to the strengths of your business has never been more important. While many businesses say their people are their most important asset, some make it happen by connecting the future value of their business with the aspirations of those who work for them now.

This is why employee share ownership plans (ESOPs) and employee profit sharing plans (EPSPs) are rapidly gaining popularity. These plans enable your employees to share in the profits of your company and / or acquire an ownership interest. By connecting individual effort to business results and rewarding people for their work as the company progresses, productivity grows. Morale and teamwork improves, retention strengthens and the ‘great resignation’ is something that happens to your competitors, not your company.

While there are many business leaders who have experimented with bonus plans and other incentives, these programs are typically not sufficiently linked to company goals and expected outcomes. Many bonus plans are haphazard approaches that are very subjective, with owners admitting that even though they pay bonuses, it does not really move the needle on how well their business performs. Most business owners admit that their bonus plan exists on paper, costs them money, but do little to move the results and value of the business forward.

You can decide to change that.

By contrast, well structured EPSPs and ESOPs build an employee ownership mentality and a self-motivating organizational culture. Sharing in profits or having an equity ownership interest in a company motivates people and typically corporate performance and corporate value rise.

Many owners think that such programs have the be complex, or costly, but that is not the case. When MNP’s SMARTshare team works with owners, we focus on flexibility and on developing a scalable structure for a company’s particular situation and goals. Profit-sharing and employ ownership can even be combined, providing more empowerment for the company, owners, and the employees. The mere conversations you engage to define your needs, and the ideal program will already and immediately provide lasting benefit.

Here are some key reasons why business owners are choosing to share ownership and profits with workers, and how it enables them to build value even during a disruptive pandemic.

Attract, and keep, talented workers — Equity- and profit-sharing programs help to attract and keep the type of employees that companies need. It helps to solve the retention and recruitment problems head-on.

It is really hard to have the profit and ownership sharing discussions with people who already have one foot out the door. Do something now that makes people want in and stay in. Employees often thank us for helping their owners develop plans that benefit and reward them as employees, and in some cases relieve them from the pressure of having to find new jobs.

 

Support a strong, appealing culture – Prospective employees often rank company culture as one of the most important factors when considering potential employers. Don’t just build a plan to hire new talent. Build a profit or ownership sharing structure now that rehires and affirms your existing team and make them feel even more engaged.

From the employer’s perspective, a strong culture is a major contributor to improving business outcomes and propelling growth. Employee ownership and profit-sharing programs prove to any candidate looking at the company that the owners have a plan to help build value for employees. Employees understand better what is expected of them and what they’re working toward. Engaged employees are much more likely be motivated and committed to the business.

 

Drive productivity, performance and growth – Good share ownership and profit-sharing plans reward employees as if they are fellow business owners. EPSPs and ESOPs are linked to corporate performance through key profit metrics such as cash flow, gross profit, and net profit. This drives productivity because the better employees perform, the more profits they generate for the company and the more wealth they generate for themselves. Motivated employees are also catalysts for corporate innovation and growth. It is a win-win for owners and employees alike.

If you are assessing potential ways to amp up the value of your company in the rapidly evolving marketplace, an ESOP and / or an EPSP could be just the solution you need.

Learn more

To learn how these plans could fit your organization, contact Eben Louw, CPA, CA, Partner.

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