Equity ownership vs. Profit Share – how to motivate your employees?

When you started your business, it was probably a one-man job.

Your business became your life. Long hours, high pressure.

Luckily, all the effort started to pay off. Your business got larger. You started to employ people so you can reduce your workload. You either employed people for working stuff you are not good at, or you employed them for more routine and/or urgent activities, so you can concentrate on the most important stuff.

But how to make sure that employees do their work well? You need to work on incentives, especially financial ones.

One type of financial incentive is to tie their performance to the results of their work and the results of a company.

The first option is to offer them bonuses as a share of the company’s profit. You do not change your ownership share, but you share the profit with your employees, so they can get more interested in the wellbeing of your company.

The second option is to change the ownership structure of your company: offer your key employees to become your business partners and become co-owners. However, you need to be aware that it is not a company with one owner anymore. It is a partnership with different legal and economic rules.

 

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