There are many reasons why some companies choose a strategy that involves either employee ownership or profit-sharing. Some employers find that these practices can help attract and retain employees, give employees a sense of entrepreneurial motivation or a more complete type of compensation for their work.

 

Employee ownership

In addition to helping attract/retain employees, employee ownership can be used to buy out the current owner(s), raise needed capital, or share responsibility for the company.

Tips:

  • Combining employee ownership with decisions that affect their jobs can increase a sense of ownership and motivation.
  • There are a number of structures to choose from, with ESOPS (Employee Stock Ownership Plans) and worker cooperatives being the primary ones.
  • Certain legal structures affect the potential for employee ownership.
  • In some cases, the ownership structure may save on taxes.
  • In some cases, employee ownership can help keep a company and the jobs it provides in a community, and/or improve wages.

 

Profit-Sharing

Profit-sharing can help motivate employees and give them a sense of ownership, and it’s a way to reward employees for the work they’ve done to increase the company’s profits. There are different methods of profit-sharing, from bonuses to allocation of shares in the company.

Tips:

  • Profit-sharing can be a way to align employees’ compensation with the company’s financial ups and downs, and it can provide more flexibility in economic downturns.
  • Typically, an employee’s percentage of the profits may be based on factors such as seniority, level of pay, or attainment of specific profit-related goals (aka gainsharing).
  • Profit-sharing puts a strong focus on profitability, sometimes at the expenses of other qualitative or value-related goals.
  • It’s helpful to combine profit-sharing with open book management, to give employees an understanding of the company’s financials and help them fully understand how to maximize profits.
  • Due to the company’s ups and downs, profit-sharing can cause uneven levels of compensation, which can be difficult for employees.
  • Profit-sharing funds can be used for funding retirement plans.