Jun 2020 A Profit Sharing System? Why Didn’t I Think Of That?!
A Profit Share System for key employees? Why didn’t I think of that?!
Thankfully many of us have some great employees working with us at the moment, which is why employee retention and job satisfaction probably continue to remain high on our list of priorities.
One employee retention strategy that I like is the Profit Share System (PSS). I developed a system for the landscape industry years ago, after using one for years in my previous business. When you get a PSS right, it contributes significantly to retaining key employees and solves the issue of annual wage increases and Christmas bonuses.
The Annual Wage Increase can be an awkward time
Many business owners don’t always like the anticipated conversations each year of discussing wage increases. There are some employees that deserve an increase, and there are others that do not. The conversations with the employees that don’t deserve an increase can be awkward, so a Profit Share System can be a nice replacement for the annual wage increase.
I am not a fan of the Christmas Bonus
The Christmas Bonus is still paid by some business owners. A bonus is paid to key employees, or all employees, just prior to the Christmas break. I am not a fan of this approach, because it is not paid according to productivity and profitability, or definitive results that everyone is aware of. An employee may receive a bonus for his mediocre 12 month performance because the owner thinks, “We (the business) have had a great 6 months leading up to Christmas, I am in good spirits, so I will reward everyone.” If the same bonus is not paid next year, employees will wonder why.
How does the Profit Share System Work?
A Profit Share System will offer employees a financial reward to work harder and smarter to meet targets and produce better results for your business. The results mean more profit for your business and a paid reward at the end of a financial year for the employee, making it a Win/Win system.
In order for it to work, it must be set up properly, like any good system. Setting up a Profit Share System in a Landscape Construction business isn’t hard, you just need to understand your numbers (Quoting, Tracking and P&L). Each job that a Site Supervisor installs will have a budget to follow, (meaning that when the job is quoted, it will display a breakdown of man hours needed to build the project, all materials and sub-contractors costs included). These are tracked by the Site Supervisor and checked by the Owner during the development of the project. A dollar value is added to the labour rate (in quoting setup) to cover business expenses.
A percentage of the Net Profit of each completed project is recorded (it’s the Site Supervisor’s reward) and accumulates with his other projects over 12months and is paid after June 30.
A concern that some of my clients have expressed when they are first introduced to this system is, “How do we stop Site Supervisors from rushing jobs to hit targets?” We stipulate that the reward is only paid providing workmanship on each job is of the company’s high standard.
Underestimating can also be an issue, but trialling the system first is important to sort out such problems.
Profit Share for Maintenance
Profit Share works for a garden maintenance business as well, but first, get to know your numbers, profitability of each crew and then a Profit Share based on profitability and some other criteria like client retention, client happiness and quality of work could be included so everyone wins.
The Profit Share System is definitely a worthwhile employee retention strategy, and something to consider going forward into the 2021 financial year.