Questions

The people who would start this business (unit) would be doing all the work, but using our systems, clients and knowledge. It may be that we can then continue expanding in this manner. What are the +/- of a share-ownership program which gives those who setup a business Unit a stake in the Group as opposed to each Unit being a standalone company?

Absolutely.
And it is easy as your imagination.You can create it to fit your culture. That said, I believe that the biggest incentive is to tie compensation to the profitability of the unit.
1) Be sure to include everyone who touches outcomes.
2) Create a profit share by deciding how much you want to land in the hands of your employees. Be sure to use a net profit and be sure to account for future capitalization and cash flow. (Typically between 5-25%)
3) Divide the profit share by salaries or some other very obvious criteria. In other words, don't make it arbitrary or people will be dis-incentivized.
4) The profit share is always paid to the group, not the individual.
4) Be very involved in teaching net profit creation. They will need business acumen.
Lastly,
5) While stock options and employee ownership may be a future goal, a profit share let's people hit the ground running, creates excitement right now, teaches needed business and finance skills and adds a fabulous team culture. Work with your unit to create the options or ownership they want later when they understand the principles and can help design the rules and criteria.

I practiced this for over 20 years and the results were phenomenal. People grew the business, put cash in everyone's pocket, created an exciting environment and was in real time, not future time. It is magic.

This is a quick answer. Let me know if you need more. I'm happy to discuss.
Ruth Schwartz
High Performance Advocates
530 802-2075


Answered 6 years ago

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