Want to Keep Great Employees? Cut Them In on the Profits

I've been lucky enough over my working life to own a piece of several of the organizations I've worked for. Nothing inspires dedication, hard work and above-and-beyond effort than having an ownership stake in the company. When your future is tied to the future of the business, you do tend to feel a bit anxious over the bottom line.

But it's more than that - it's a sense of pride and accomplishment when the company succeeds. You know that all the hours you've put in have helped to contribute to that success. And that pride nurtures a strong loyalty to the business that might otherwise never take root.

Small business owners might think that profit sharing only works for large corporations whose shares are traded publicly and who have plenty of assets, but profit sharing programs are probably even more valuable for SMBs than for larger companies. Incentive programs like profit sharing, stock options and SARs (stock appreciation rights) allow smaller companies to attract and retain top notch employees that might otherwise be recruited by larger competitors.

An employee profit sharing plan gives an SMB an opportunity to offer their employees retirement benefits, reduce its taxes and maximize 401(k) contributions. A stock option plan is a relatively simple way of directly involving your employees in the future of the business, by offering them shares of stock in the company at a discounted rate from the full market value. Stock options vest over time, so the longer the employee stays with the company, the more shares they are entitled to purchase. Stock appreciation rights (or phantom stock) are really a form of bonus given to employees and/or management if the stock price of the company increases within a specified period of time. The bonuses are paid out in either cash or stock.

It's not hard to see how these types of incentives would be attractive to employees. When you reward your staff for their contributions to the success of the business, they work harder, they're more satisfied in their work, and they'll stay with the company longer.