It may be a scary term for many entrepreneurs, but when it comes to retaining talent, profit-sharing is one of the most powerful lures out there. “There are some sophisticated profit-sharing models out there and they all kind of do the same thing,” says Dave Mowat, president and chief executive officer of ATB Financial. Here’s how to share nicely.
The Pitch: Mowat tells people to sell the long-term benefits of profit-sharing. “You have to think of it on a three-year average,” he says. “You might have a great year this year and nothing next year and then a medium year. You have to think that it wasn’t $3,000, nothing and $1,500; it was $1,500 each year.”
The Payoff: Profit-sharing offers small businesses the chance to communicate with employees about how the business functions, which is as important as the dollars and cents. Instead of seeing their future with the company in two-week increments that align with paycheques, “you’ll be talking to them about how we’re doing this month or what the forecast looks like for the next quarter or year, and they’re starting to think of their employment with you in a longer horizon,” he says.
The Perks: Mowat advises business owners not to worry if there isn’t a huge payout. For many employees, it’s the positive reinforcement that is remembered. “Profit-sharing does its best work when the company is experiencing growth and chances are that is when the economy is doing well, and that’s when you really want to retain people,” he says. The downside is that if there isn’t a profit, there’s no extra money to distribute.