Two construction workers in blue helmet discussing project

Picking your Winners – selecting the right people for your Employee Ownership and Profit Sharing Plans

March 30, 2021

Picking your Winners – selecting the right people for your Employee Ownership and Profit Sharing Plans

Synopsis
4 Minute Read

Creating an effective profit-sharing or employee-ownership plan requires a thoughtful approach that includes screening, meeting eligibility requirements, and / or objective criteria.

National Team Leader, ExitSmart

Recently, MNP met the owner of a highly successful 45-year-old Northern Alberta construction company (let’s call him Doug). Doug explained that over the last five years, he had hired three general managers. All of them had been hired with immediate equity shares or stock options, as well as profit sharing as part of the employment package. Sadly, all were either released or resigned within 18 months, and because they were shareholders, were paid in full for their shares on their way out. Doug stated, “All of these individuals seemed perfect at the time, but this plan of having people become owners for free, and then pay them for their full share value when they leave, just isn’t working for me.”

Doug’s story isn’t unique. With heavy competition for people in key roles, and owners’ desire to build bench strength, employee ownership can be a highly effective tool to attract and keep strong talent, set the stage for business transition / succession, and drive business performance.    

But how do you pick the “winners”?

Qualify employees by creating screens

So – the first question isn’t, “to which of my employees should I offer ownership?”, but rather “what are the qualities and requirements that I’m looking for in an owner and business partner in my business?”

Effective share ownership plans have screens, eligibility requirements, and / or objective criteria that must be met before an individual becomes a shareholder. These vary, but may include levels of “screens” to be eligible for additional benefits such as profit sharing or ownership. Below is an example of how you might apply this.

Screen 1: Employees eligible for profit sharing

  • Duration of employment (Must be employed for 6 months, one year, five years).
  • Must be performing at a satisfactory level within their role.

Screen 2: Employees eligible for profit sharing and / or phantom share plan)

In addition to the above:

  • Employees must be in a field leadership role (field supervisor).
  • Employees must have proven ability to achieve critical goals within their role.

Screen 3: Employees eligible for ownership

In addition to screens 1 and 2:

  • Employees must be in a senior role, such as project management, operations or financial management (ability to move the needle on business value).
  • Ability to invest some cash (skin in the game).
  • Must have a personal financial history which does not compromise company bondability.
  • Is a proven leader within the organization.

Of course, how you establish and apply the screens will depend on the reasons for implementing the plan and the critical objectives that you are wishing to drive. A plan designed for succession will differ from one which is designed to attract and retain strong talent. Similarly, a plan designed to incent top line (revenue) growth will differ from one whose objective is to improve the profitability on each project. 

Creating an effective profit-sharing or employee-ownership plan requires a thoughtful approach and discussions to identify your true needs, and how it ties with where you want to take your business. Our SMARTshare process is designed around these discussions, taking you on a journey where we uncover what will work best, and then finding a scalable structure that is relevant for you and your company long term.

To learn more, contact Lynne Fisher , National Team Leader, SMART Services at [email protected]

Insights

  • Performance

    February 07, 2023

    Underused Housing Tax Act

    The latest on the Underused Housing Tax and the unanticipated impact of filing requirements on Canadian private corporations, partnerships and trusts.

  • Progress

    February 06, 2023

    What’s driving the labour shortage for Canadian business

    Understanding the “what” and the “why” behind the labour shortage in Canada can lead business owners to broaden their thinking on how to manage it.

  • Performance

    February 06, 2023

    Managing your farm in an era of rising interest rates

    Rising interest rates present new challenges to farmers, but using the right strategies allows you to stay in control and navigate this period of change.