Competing for quality talent in the home service industry grows more difficult each year. As enterprise businesses expand, smaller LLCs and S corps struggle to attract – and retain – the experienced and talented employees necessary to help their business grow. Often the work experience can be more fulfilling in a private organization, but the shiny objects offered by larger companies can overshadow this message.

Increasingly large employers offer bigger perks, like unlimited paid time off, free lunches and extravagant company outings. Smaller businesses feel the pressure to add some of their own, but on a tighter budget and with smaller staff some may be out of reach.

So how can small businesses change to attract new talent? Consider establishing a way for everyone on the team to profit from the company’s success. By offering an owner-like stake in the business to employees, you will make them feel valued and invested in good outcomes instead of wanting to simply clock in and out to get a paycheck. An emerging solution for this is a combination of phantom stock offerings and profit sharing.

These aren’t entirely new concepts, although they’ve been unfamiliar to smaller, privately owned businesses for a long time. Phantom stock allows employees to receive future cash payments from the company based on its value, and profit sharing offers shorter-term incentives to employees because they are distributed more frequently.

Phantom stock

Again, phantom stock offers employees an actual piece of the business. This somewhat mirrors stock options available in publicly traded corporations in that phantom stock pays cash bonuses on holdings at a later date based on the company’s value. The payout is often triggered by the sale of a company or other major changes.

This owner-like benefit offered as an incentive allows even new employees to have some “skin in the game” without any monetary investment. Their investment is the time and skill to make the company successful, and it allows them to directly profit from doing an exemplary job.

To take advantage of this program for recruiting you must communicate what owning phantom stock entails and its benefits, and you should also include the point in employment that accruement begins. Alluding to it in the job description itself can attract people to apply. And remember, before implementing anything, you should have an attorney review the plan.

Profit sharing

A profit-sharing plan offers businesses of any size the opportunity to distribute a portion of their profits to employees. Employers determine the amount of profit to share, keeping in mind that up to 25% can be a write-off for the business.

Unlike phantom stock, a profit-sharing program is not linked directly to the company’s overall value. Profit sharing pays out to employees on a regular basis, often quarterly or annually, rather than only paying on a triggering event, as is the case with phantom stock.

Like phantom stock, offering perspective employees a share of the profits in addition to a paycheck gives them a direct correlation between hard work and more money in their pocket. Job seekers want a position where their dedication is rewarded, and providing a monetary payout can be a strong incentive for accepting a position.

Implementing phantom stock and profit sharing

Implementation for a plumbing or mechanical contracting business does not look much different than any other industry. First, set specifics of the program after an evaluation of a company’s growth and review of future goals. Next, define the event to trigger payout for phantom stock and/or percentage for profit sharing. Finally, have the legal agreements generated, add these benefits to your job descriptions and introduce the new incentives to your existing team. This process can be complex, especially when it comes to creating a legal, binding document, so we recommend you work with a team of experienced professionals. For example, at Reins, we worked closely with a team of accountants and attorneys to develop a sound framework and to streamline the implementation process.

By offering an owner-like stake in the business to employees, you will make them feel valued and invested in good outcomes instead of wanting to simply clock in and out to get a paycheck.

Like every program, a business could encounter some issues. The success of phantom stock and profit sharing depends entirely on the success of your business. Employees could become dependent on the profit-sharing bonuses and encounter hardship if the payout is unavailable, delayed or smaller than expected. Phantom stock plans can be complex to design and manage. Also, if used successfully to recruit top talent, it is paramount that they be administered thoughtfully to incentivize long-term retention. But overall the benefits to recruiting and retaining talented individuals outweigh the risks.

Transition to phantom stock and profit sharing

Presenting phantom stock and profit-sharing programs as part of a recruiting push makes positions with a small business look more attractive to quality talent, even in comparison to enterprise-level employers. Offering employees some ownership in the organization and monetary incentive for increasing profit makes them appreciate their own value to the business. Plus, when working harder directly impacts their financial future, employees perform to their highest abilities.

Innovation in the way small plumbing and mechanical contractor businesses operate is the key to growth. It gives their employees a reason to go all-in to make your organization a success and is an effective means to contend with enterprise-level competitors. Attracting and retaining talented practitioners is not as difficult with phantom stock and profit-sharing programs, offering hope to the industry and incentives for more young people to pursue positions in the trades.