If you’re looking for new recruiting and retention tools for your staff, one option is providing a profit-sharing plan. If your company is winning in terms of profitability, this program can help ensure your team is winning as well.
Pros and Cons
One of the main benefits of a profit-sharing plan is it helps make employees far more engaged with the business.
“We believe that by incentivizing our managers off of branch profitability, it pushes them to think like owners,” says Christianna Denelsbeck, CFO for Landscape Workshop, based in Birmingham, Alabama. “We also believe that by having two targets (profitability and customer retention), we promote making a profit, but not at the expense of good service. It can be easy to make a profit in the short term by under servicing customers, and we never want that to be the mentality.”
Profit sharing rewards your team for their hard work when the company succeeds. It also helps employees understand costs and how to reduce them.
“They also will have a better appreciation for the value they can bring to the bottom line by being efficient and cost-driven,” says Jim Westover, president of LandOpt. “We often coach our contractors’ teams to understand the P&L for each job so they can identify adjustments that need to be made as the season progresses.”
One of the main cons of profit sharing is the risk of some underperforming employees being rewarded as well.
“It can and unfortunately has happened where an employee gets profit sharing similar to others in that position and they are not pulling their weight,” says Barry Schneider, president of Surrounds Landscaping, based in Sterling, Virginia. “However, I have seen the team put peer pressure on an individual who is underperforming to pick it up. I think the profit sharing adds incentive to the rest of the team to make sure everyone is pulling their weight. I think this works in our favor.”
Denelsbeck says they attempt to make metrics as individualized as possible, so the high performers are the ones who are rewarded.
“For most managers in the company, they are incentivized off of their branch’s performance against their EBTIDA budget and also off of their individual customer retention for the year,” she says. “Our hope is that this creates a performance culture rather than a political one.”
Another con of profit sharing is if you set unattainable goals. Nothing discourages a crew faster than unrealistic expectations. Schneider adds that since the plan is based on their performance for an entire year, it is a long time for their workers to wait for the extra money.
Advice for Others
Both Schneider and Denelsbeck encourage keeping your plan simple and measurable.
“If employees do not understand incentives or how they are measured, they lose impact,” she says. “Also, reevaluate the incentives over time – sometimes a change in structure is necessary.”
Denelsbeck says management should constantly evaluate the effectiveness and ensure the structure is promoting the desired behavior. If not, you need to be willing to shift the structure.
“I would absolutely consider incentivizing employees at all levels with profit sharing,” Westover says. “Having them take ownership of their work and understand the impact they can have on the bottom line is a tremendous benefit to everyone. Profit sharing can be a small price to pay for higher productivity and less turnover. It also can reduce equipment costs and downtime, as employees will value equipment as if it is their own.”