Where Profit Sharing Backfires & How to Avoid that Trap

Jun 25, 2024 | Employee Retention, Employees, Growth Tips, Leadership, Management, Strategy

Over the years we have helped hundreds of landscape firms set up incentive programs. Profit Sharing systems are some that I am most proud of. Interestingly, not all company cultures “accept” profits sharing. But is it the company, or how it is implemented? I explore some common challenges and fixes, below. Profit Sharing – Lessons from Real Life Last week Mitch Katz (our Director of Operations) and myself were in Washington DC co-leading one of our peer groups. Many attendees said it was one of the best meetings in years. Why? Three reasons stand out:

  1. Vulnerability and Courage: Our host company had meaty issues to solve. He was quite open and honest, and ended with some very courageous actions.
  2. Not All Work: We had huge fun before/during/after the meeting, including go-karting with some highly competitive entrepreneurs, wine tasting, and scooter ride around the capital.
  3. Real Life Challenges: All our members brought real life issues and 3-year strategies to be vetted, and this helped everyone around the table.

Two members raised the issue that their profit sharing program was missing the mark. The symptoms were:

  • The employees grumbled about the plan.
  • The companies had decent (but not over-the-moon) results.
  • The owner felt something was missing.

Fix or replace your profit sharing program? We talked about replacing the program with other incentives, but my advice was to first try to repair it. Some of these repair strategies may help you. Three common challenges with Profit Sharing.

  1. INCONSISTENCY. The monthly results are not shared consistently. They are not explained, left to the imagination of many employees.
  2. VAGUE CONNECTION. The crews are not clear on what they need to do to drive company-wide performance. They need to be shown the connection between their individual results and the group results.
  3. LACK OF CONTROL. The employees don’t feel that their individual efforts really matter or are acknowledged. And the company culture is not enough to overcome this feeling.

Consistency is key, but it’s not enough. These last two challenges can be solved by taking more time to share and discuss results, and also by weighting the profit share payouts. Example 1 – Whispering Pines Landscape, Ontario, Canada I am proud to have coached and continue to work with the owner, Greg Wildeboer (one of the best dressed clients I work with, but that’s another story.) We set up his original profit sharing program and he continues to refine it. He weights the payouts by department performance, including snow, so that the mini teams are empowered to pull together and be accountable to each other. It’s a nice balance between dept and company wide results. Example 2 – Puryear Farms, Nashville, TN The founder, John Puryear and I have also worked together for years – helping him turn around his business and do exceedingly well (podcast of his story is here.) He took a different direction, setting up a system that allows individual performance to drive one’s profit sharing earn out. He has also proven that an Hispanic culture can embrace profit sharing.

Your challenge – Don’t let incentive programs backfire!

Incentive systems that don’t work could actually be dis-incentivizing your team; you need to fix them ASAP. But try to fix your program before changing it out completely. Otherwise it could be seen as “yet another change” in your company, which could also be viewed as over promising and under delivering. Like I said, consistency is key. Regards, Jeffrey Scott! P.S. Want to join one of our high-performance peer groups, and rub shoulders with smart entrepreneurs like the ones mentioned? Apply here. He who hesitates is lost, so dig in!