For Gen Z, the cost of attaining a college degree no longer has the prestige or return on investment that it once held for the generations who came before them.
In some circles, the generation born between 1996 and 2010 is becoming known as the “Toolbelt Generation,” as more young people opt for less expensive trade schools that offer a greater ROI in less time, higher placement rates and tremendous job security.
Simultaneously, however, this group of young workers also presents a challenge for small contractors to recruit and retain as employees. In a 2023 survey by ResumeLab, 83% of Gen Z workers said they consider themselves job hoppers, which means to keep them happy and on the payroll, employers have to get creative.
And, while large companies have a collection of options at their disposal to entice these workers to apply for posted positions, this isn’t always true of smaller companies. This includes the smaller home service companies looking to hire plumbers, electricians or HVAC technicians.
As Gen Z acknowledges a preference for long-term gain, many perks, like unlimited paid time off (PTO) or free lunches, are too superficial to attract the most talented workers. This means that independently owned businesses need to be more creative in offering incentives that mirror the options their larger competitors are able to provide.
Offering a Stake in the Company
While larger, publicly traded organizations can provide compensation in the form of stock options, this incentive isn’t available to small businesses.
But thanks to some creative ingenuity, privately held companies can offer their employees a stake in the business’s future success, and there are two ways to share this equity with a team: phantom stock and profit sharing.
Phantom stock is a benefit that gives employees the benefit of stock ownership without transferring any actual stock. Phantom stock isn’t traded on the market, but it still offers employees a percentage of a company’s worth. This provides employees with a stake in the company, giving them a sense of ownership that is based on the value of the business.
Used effectively, phantom stock is a way to retain key employees or senior executives based on longevity, becoming more valuable the longer they stay with the company. Company owners can set a deferred compensation payout that is triggered by certain events, such as the employee’s retirement, the sale of the business, or another future event.
Another valuable incentive small businesses can use to attract and retain Gen Z workers is profit sharing.
With this type if bonus, companies distribute a portion of their profits to their critical employees, giving them a share of the company’s financial success. This is usually based on the business’s overall profitability but can also be tied to an individual’s performance.
Offering employees cash in hand on a more frequent basis can be a strong incentive for job seekers to join the company and incentivizes existing employees to stick around.
Providing a Sense of Ownership
When employees feel as though they have a stake in the company, they often feel recognized and more invested in its success.
But there are other reasons why offering phantom stock or profit-sharing leads to higher employee retention rates and a greater sense of loyalty. These include:
· The alignment of goals: Owning a stake in the company aligns the employee’s personal success with the company’s vision. When employees are accountable for outcomes, they feel their efforts are more valued.
· A sense of belonging: Employees with a stake in the company take a greater sense of pride in their work and feel more committed to the company’s culture.
· Greater personal investment: Because of their stake in the company, employees understand their future compensation is tied to the success of the business. This generally makes them work harder to improve the company’s financial performance.
Reducing Turnover and Training Costs
Providing this sense of ownership also helps small businesses retain their employees. Not only do profit-sharing and phantom stock incentives make key employees feel more vested in the company, it also allows employers to set deferred payments that further incentivize employees to stay on for the long term.
And, when turnover is low, companies save money on training costs. While any good home service company should offer ongoing training to its employees to learn new skills or provide education about new products, businesses will still reduce the time and money they spend recruiting and onboarding new employees. Since it costs nearly $4,700 to hire a new employee, employers can easily see how retention positively impacts their bottom line.
Additionally, a stable workforce means that a company has a deeper knowledge base. Employees who have worked at a company for several years have more time to gain an in-depth understanding of company procedures and the skills needed to work their positions more effectively.
Building an Employee Equity Program
In the past, only larger companies could offer such interests in their companies as part of an overall employee equity plan because their companies are traded on Wall Street. But with the availability of improved compensation plans available to smaller companies, the ability for independently owned home service businesses to build an employee equity program if a very real prospect.
Because stock incentives are more than just a paycheck, they can become as integral a part of a competitive benefits package as providing health insurance and retirement benefits.
Today, small business contractors have the unique opportunities to create the same compelling employee equity programs the “big dogs” in the industry can offer to cultivate the loyalty and longevity necessary to grow a business.
In an era of labor shortages and job hopping, contractors shouldn’t be afraid to think outside of the box to keep talented employees, reduce recruiting and training costs, and ensure key talent stays with the company long term to make a business more successful. Building a competitive employee retention program with innovative compensation packages should be a part of that strategy.
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Anthony Pecora