What’s been going on at Penguin HQ this week?

Well I think it’s fair to say that even after taking a couple of days off, we’ve been more productive here at Number 16 than they have been at Number 10. And the thought of yet another budget before the end of the year is giving accountants issues with their blood pressure. 🤬

Back to the real world, something I’ve been asked by THREE clients this week is how to incentivise key staff and to share in the profits of projects (or the business as a whole) – it’s certainly something I would advocate you give serious consideration before a competitor does.

And I’m sure you want to know what my dinner has to do with accountancy, so read on…

A Pheasant for the Pot

Last week I was invited to a pheasant shoot by a good friend and client. I wasn’t shooting, but I took the office dog and we watched from behind the gun line. Gertie even managed to retrieve a few partridges the other dogs missed 🙌. It was a really great day – lovely weather, excellent hospitality throughout, and we were offered a few brace of pheasant and partridge at the end of the day. 🦃 [closest thing I can find to a pheasant emoji…]

Lots of people have strong views on shooting. And I get it – w*nker bankers and hooray henries flying in from London to obliterate half of Exmoor’s wild bird population in the name of one-upmanship is not sporting in anyone’s books. And who can actually eat 50 pheasants, or however many it is they end up shooting? Clearly that’s a shameful waste.

But for the smaller shoots like this one – the total birds shot for the day was 23, across 9 people shooting and about as many hangers-on like me – I look at this slightly differently:

If we are to eat birds at all, these fellas are at least six months old (some will be up to 2 years old), they’ve enjoyed being totally free range during that time, and indeed only about 1/3rd of the birds reared by the shoot ever actually get shot.

Compare that to your standard supermarket chicken – reared in a barn for exactly 56 days, at a stocking density you wouldn’t believe, never seeing the sun or fresh air, and then 100% of those being taken off for slaughter. If I was a bird and had the choice, I know which one I’d prefer to be.

Hunting for wild animals compared to intensively rearing them indoors must have its merits. Indeed, there is something rather ethereal about preparing an animal which you know was killed just hours ago, and only from half an hour down the road – not two weeks ago, having been passed through umpteen stages in a supermarket logistics chain.

Ethics aside…having got home with my birds, half an hour in the garage with a YouTube video and hey presto… dinner! Pheasant wrapped in bacon, and lovely it was too. 🍖

If you’ve not considered cooking game birds before, then I would highly recommend getting a copy of the River Cottage Handbook by Tim Maddams. This is the time of year to try it – and because of the weird economics of the shooting industry (separate article on this to follow – search our blogs) – the price of an oven-ready pheasant may even be less than the price of a chicken these days.

Anyway, that was my day out of the office last week… and by the looks of the weather forecast for next week I think I timed it just right 🤞

Incentive Schemes for Staff

It’s a sign of a very competitive labour market when three clients in the space of a week ask you what they can do to incentivise and reward their staff, both for performance and for loyalty.

Let’s face it – replacing staff is expensive. And I don’t mean in terms of recruitment fees. Well, that too: but the real costs are in expertise walking out the door, the weeks and weeks of training time, even for qualified staff who need to learn “the way we do things round here”.

They say your most profitable customers are the ones you already have – getting new customers is expensive, so treat your existing ones the best. The same is true for staff. Don’t neglect them, and don’t just assume because they have been with you X years, that your competitor down the road hasn’t got their eye on them. You don’t own them.

So you need to be alert to the jobs market and make sure you’re offering something to reward staff for the profits they generate for your business.

This of course assumes they ARE profitable. I’ve just dome some numbers for a client who has a salesman on a high salary and no commission…let’s just say if the salesman walked out the door tomorrow, they could afford to lose about FIFTY PERCENT of their annual sales and they’d still be no worse off. That’s going to be an awkward conversation on Monday… 😬

“Nobody is indispensable”

Or so said Alex Ferguson, apparently. And it may be true – if you run a highly systemised business like Starbucks then you’re probably expecting staff churn and have sh*t hot onboarding methods to get staff up to speed.

But at all levels in any business, there will be roles that you would struggle to fill if someone put their 30 days’ notice in your in-tray tomorrow. 📩 This tends to be more the case in small firms, with a dozen or fewer staff.

And it’s especially the case with people who can pretty much manage the whole customer relationship without you having to get involved. This isn’t about chucking money at your staff. It’s about making sure they have the ability – and incentive – to help to build your business, and be rewarded for it.

Let’s take John as an example. John is alarm fitter, working in your firm. He’s got a lot of experience, good at his job and is confident dealing with customers. From an inbound enquiry, he’ll meet the customer, quote for the job, physically do the work and send the bill without you having to lift a finger. 🤑🤑

John is GOLD for your business. Make sure he is rewarded properly before someone else gets the opportunity.

Is Cash Still King?

Probably. But before you assume that’s all John cares about, my top tip: ASK HIM!

In a firm I used to work for, a member of staff quit not because of their salary, but because of the firms’ inflexibility. This person wanted to leave early on a particular day and work longer on another day – something to do with childcare or grandparents or something. Essentially the same hours just over a slightly different pattern.

I don’t remember – but it was important to them.

The firm wasn’t interested [it was one of those old fashioned types who wanted bums on seats in the office] and they lost a great person over it.

So if there’s something you can offer John which won’t actually cost you much as a business, but has value to him, give that some thought.

Perhaps it’s leaving early one day a week. Perhaps it’s allowing him to bring his dog to work. Or even letting him use the works van at weekends.

Bonus Systems

Aside from a blanket pay rise, lots of employers look to reward staff who have contributed to the profitability of the firm. Makes sense.

In John’s case, you might keep his salary the same but offer him 10% of the profit made on each job. If he can price better: more profit. If he can get the job done quicker, with less labour costs: more profit. And if he works a bit quicker so he can fit a cheeky Friday afternoon job in the diary too: you guessed it, more profit!

I should caveat this by saying be careful how you calculate “profit”. In our example, it’s fair to include a share of the overheads in your profit figures on each job (like insurance, depreciation on the vans, etc etc) but you need to shield staff from things they have little or no control over.

Let’s say you move premises to a massive new warehouse, which will support your growth plans for the next 15 years. On day one, the rent of the new place is going to absolutely rinse your profits. And if it also hammers John’s profit share too, that’s going to be rather demoralising for him, because there’s literally nothing he can do about that.

So, work out a bonus based just on the things John can control, on a job-by-job basis. Labour. Materials. Selling price. Quality of work / remedials. And so on.

In practice, you’d pay this “profit share” as an additional cash salary to John. Bear in mind he’ll have tax, pension and NI deducted, and you as the employer will have NI and pension contributions to make on that too.

Of course, if John would be equally happy to have his “bonus” paid to him as an additional pension contribution, then there’s no tax on him or you, so that’s nice!

Equity in the Business

This of course is the logical next step for key management people who’ve been with you for a while and are integral to your strategy for the foreseeable future.

Giving someone equity in the business doesn’t stop them leaving, but it gives them a huge incentive to stay. Not only will they be getting a share of the annual profits of the company, but if one day you sell the business they’ll get a cut of the growth since they “bought in”.

Indeed, if you’re looking at retirement in the not-too-distant future, a minority shareholder could be a good way to prime someone to take over the reins and buy your shares off you oer the next X years.

When looking to sell your business, the people already within it are usually the ideal purchaser, so start early…!

Naturally, you have to accept that this involves selling part of your business. If you see it as “your baby” then it’s going to be hard. But you need to get over that and see it as a trading vehicle, like every other business out there. Sorry not sorry.

It’s important to get this right from day one of course, especially re: what happens if someone leaves – do they have to give up their shares? Who will buy them out? At what price…? Basically you need a shareholders’ prenup. That’s easy enough to do.

Share schemes can also be very tax efficient compared to cash bonuses, although the cost of running a scheme can be prohibitive for smaller firms.

In short…if you’ve got some key personnel in your business and you can’t afford to lose them, talk to your Chartered Accountant about the various methods you could use to retain them and ensure that both you and they share in the profitability they can bring to your firm.

Right then, I’m off to put a bet on Mr Tumble being the next Chancellor by the end of the month…🙄