A guide to employee ownership and profit-sharing plans

*Article sponsored by MNP

As a business owner, you’re constantly juggling the challenge of growing your business and ensuring its future. One popular strategy is offering employee ownership or profit sharing. This can inspire loyalty, drive performance, and align your team’s goals with your own – but if not approached carefully, it can turn into a costly misstep.

Pros and cons of employee ownership

Offering equity or profit sharing is a way to make employees feel personally invested in the success of your business. However, you might end up paying for mistakes down the road without a solid plan in place. One business owner put it perfectly, after three of their general managers either resigned or were released.

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.”

So how do you avoid these pitfalls? It comes down to ensuring you’re offering ownership to the right people, who have the skill and mindset to truly be partners in the business.

Qualifying employees for ownership

Before handing over equity or offering profit-sharing, ask yourself, what qualities should a business partner have? Ownership comes with responsibilities, and not every employee is cut out to be a business partner.

These qualifiers can help you identify the right people.

Qualifier one: Employees eligible for profit-sharing

• Minimum time of service: Your employee has been with the business for at least six months, a year, etc., depending on the role.
• Consistent performance: Your employee is meeting or exceeding expectations in their position. 
• Leadership or senior roles: They should hold leadership roles, such as a manager, executive, or supervisor.
• Long-term commitment: They demonstrate a mindset geared towards the long-term success of your business.

Qualifier two: Employees eligible for equity programs

In addition to qualifier one, they have:

Strategic impact: They contribute strategically to your business and are committed to adding value. 

Leadership with results: They have a proven ability to lead and deliver measurable results.

Qualifier three: Employees eligible for ownership

Along with qualifiers one and two, they should also be ready to:

• Invest personally in the business.
• Have a sound financial background that reflects your business values.

Align your plan with your business goals

Before rolling out any ownership or profit-sharing plan, think about your business goals. Are you trying to attract new talent, foster loyalty, or lay the groundwork for succession? A strategy designed to boost short-term revenue growth will look very different from one aimed at preparing for a future leadership transition. Aligning the plan to your long-term vision can ensure that it serves your business effectively.

Build for the future

Employee ownership or profit-sharing is not just about offering financial incentives but designing a structure that supports your long-term goals and aligns with the right people. MNP’s SMARTshare™ is a comprehensive program that integrates the core needs of business owners looking to share profits, value, and growth with their team.