More businesses offer shareholdings, profit share, succession to keep staff

Craigs Investment Partners investment director Mark Lister says if employees had 'skin in the game' they felt like they were part owners of the business. Photo / Supplied

More small businesses are offering employees a stake in the company through shares or profit-sharing opportunities as they battle to retain staff amid the labour shortage.

The trend has been welcomed by one investment analyst who told NZME employees with ''skin in the game'' were more likely to be loyal and motivated.

Master Plumbers, Gasfitters and Drainlayers NZ chief executive Greg Wallace. Photo / Supplied

Master Plumbers, Gasfitters and Drainlayers NZ chief executive Greg Wallace said many of its members were now looking at offering employees profit sharing and shareholdings in the business to keep skilled staff.

''It's a new thing and we are getting more and more coming through.''

Wallace said the industry had realised it needed to be innovative to solve the skills staff shortage that continued to plague the sector.

''We can't just keep paying more wages as the pay pressures coming on to the trades gets passed on to consumers ... that is the reality.''

Craigs Investment Partners investment director Mark Lister said if employees had "skin in the game'' they felt like they were part owners of the business rather than "just someone who worked for someone else".

''They feel like they're a part of something, they feel included and they're more likely to work hard.''

In his view, it was a fantastic incentive and he noted that more than a third of Craigs Investment Partners staff were shareholders in its business.

''We have about 650 staff across New Zealand and probably 200 to 300 of them are shareholders. It completely changes your culture and the way your staff think and operate because they are owners of the business.''

Lister acknowledged it may be easier for publicly listed companies to offer shareholdings and profit share and it was trickier for smaller businesses but it was achievable.

''I think a lot of smaller businesses are thinking about ... maybe if we have some key people or senior management how can we get them involved? The owner could sell them shares so they have a smallholding that will keep them interested and involved.''

There were also a lot of small business owners who were nearing retirement and did not have a plan.

''Whether it's a panel beating shop, a hairdressing salon or a plumbing business - rather than selling it on the open market, sometimes a better way to approach it is succession."

Port of Tauranga chief executive Leonard Sampson. Photo / George Novak

Port of Tauranga chief executive Leonard Sampson said the port had been operating an employee share ownership plan since listing on the NZX in 1992.

''It gives our team members the ability to build wealth over the long-term while sharing in the annual success of the business by way of dividends.''

Employees could buy discounted shares in the company through regular pay deductions over three years.

The latest round of the scheme was launched in February, offering 246 employees up to $5000 worth of shares at a 10 per cent discount.

Around 87 per cent of the eligible team members took up the offer.

"In recognition of the extra efforts of our team members during the Covid pandemic, last year all team members who had been with the company for more than six months received a one-off bonus of 200 shares.

''The benefits to the company are also positive. Our people tend to stay with us for a long time. They work around the clock, sometimes in all weather, and thrive on the challenges presented to them.

''Our 'can do' culture has helped make Port of Tauranga by far the biggest port in New Zealand and the most efficient port in Australasia.''

Comvita chief executive David Banfield. Photo / Supplied

Comvita chief executive David Banfield said last year its team was told if it met certain performance targets they would have the opportunity to become shareholders.

''That's because we believe having our team as 'owners' of Comvita supports long-term sustainability and will help ensure we grow profitability together. As a fast-moving, adaptable organisation we're constantly looking for people who can thrive in an environment that promotes freedom and responsibility and rewards strong performance."

Rotorua Chamber of Commerce chief executive Bryce Heard said profit sharing and offering shares was not a new concept and was well-proven but had largely been forgotten.

''Back in the 1980s, there was a big move toward innovating 'skin in the game' styles of employment. It is a great solution not just for staff retention, but more importantly for straight up productivity.''

In the forest industry, for example, the whole industry moved from the traditional wage and salary of employees to contractors.

''Contractors were paid by the output, not by the hour. The output per hour soared sometimes by up to 50-100 per cent.

''The big leading corporates of the day paid their senior staff in not only dollars, but also with a suite of other options for things such shares, discounted future share entitlements, superannuation schemes, vehicle and home buying assistance, medical insurance options, and a host of innovative measures.''

It was good to see some of this "innovation" being rediscovered.

''It is to be hoped that IRD does not ruin productivity and innovation through overzealous or envy types of taxes.''

Tauranga Business Chamber chief executive Matt Cowley said every organisation had their own culture and some offered bonuses as a percentage of profit, while others offered shareholdings.

It largely depended on the company structure and whether they were a private or a publicly listed company.

''During a time of high staff turnover, those businesses who have a strong track record of staff continuity have a unique value proposition for their customers and shareholders. Middle managers were often incentivised by whether their branch makes profit.

''However, if they surpass their annual target, their target for next year is often much more difficult to reach.''

New Zealand had an ageing population and there was a wave of business owners seeking to retire who were looking to sell.

''Due to the current high lending rates, they are looking for innovative ways to hand over their business to new owners. One way is to nominate people within their business to buy into their company over time, or forgo salary to take a share in the dividends. It keeps their staff motivated, and the owners get to gradually let go of the operations, while still receiving payments as they exit the business over time.

''Ongoing payments to previous owners provides staff with a new way of financing the purchase of the business, instead of taking on all the debt upfront.''

Cowley said he highly recommended both employees and employers seek professional advice before they commit to these agreements, regardless of how well both parties get along with each other.

''There are always unknown factors that should be agreed in advance.''