The people who would start this business (unit) would be doing all the work, but using our systems, clients and knowledge. It may be that we can then continue expanding in this manner. What are the +/- of a share-ownership program which gives those who setup a business Unit a stake in the Group as opposed to each Unit being a standalone company?
Absolutely.
And it is easy as your imagination.You can create it to fit your culture. That said, I believe that the biggest incentive is to tie compensation to the profitability of the unit.
1) Be sure to include everyone who touches outcomes.
2) Create a profit share by deciding how much you want to land in the hands of your employees. Be sure to use a net profit and be sure to account for future capitalization and cash flow. (Typically between 5-25%)
3) Divide the profit share by salaries or some other very obvious criteria. In other words, don't make it arbitrary or people will be dis-incentivized.
4) The profit share is always paid to the group, not the individual.
4) Be very involved in teaching net profit creation. They will need business acumen.
Lastly,
5) While stock options and employee ownership may be a future goal, a profit share let's people hit the ground running, creates excitement right now, teaches needed business and finance skills and adds a fabulous team culture. Work with your unit to create the options or ownership they want later when they understand the principles and can help design the rules and criteria.
I practiced this for over 20 years and the results were phenomenal. People grew the business, put cash in everyone's pocket, created an exciting environment and was in real time, not future time. It is magic.
This is a quick answer. Let me know if you need more. I'm happy to discuss.
Ruth Schwartz
High Performance Advocates
530 802-2075
I realize this question has aged quite a bit, so I'm not going to spend a lot of time answering is case it's moot, but I'd be happy to discuss this with you on a call. I specialize in adding services businesses to other existing structures.
Hello my name is Reuben, I serve currently on the local Human Resource Board of Directors and have over 25 years of HR experience. The various projects I have worked it do have a lot of relevancy for your question, but require some conversation to get real specific. I would offer you some generalities which may give you some basic direction but it is hard to give you clarity with limited engagement in the problem. Your question is actually one of type of business and structure. If this were a legal partnership or limited partnership type arrangement or is it a true Employee / employer arrangement? This of course sets the tone for how documents of business is setup and compensation with regard to skin in the game. I do have some examples which I can share but again the information will be based on type of business or service and what is going currently in the marketplace in similar type businesses as a good example. I would be happen to learn more and give you some specifics but do have some questions which will then alter the answers I provide. While I know this is really vague, I do this because I have clients in various verticals with different dynamics which really set the tone for how we are able to attract talent and engagement the type of talent needed to grow the business. Please feel free to reach out as time permits...
Kind regards,
Reuben
