Hey!
Ryan here! Welcome to Aligned Incentives, the newsletter from ShareWillow.
Coming up this week:
Profit sharing vs. equity: We dive into which is the best to offer for your business.
Product Hunt founder Ryan Hoover on why he’s excited about profit sharing
Mark Cuban’s $35m thank you to Mavs staff
Profit Sharing vs. Equity: Which To Offer And Why
In the business world, the choice between profit sharing vs. equity sharing as compensation models can have a huge impact on a company's culture, employee engagement, and, ultimately, long-term success.
Why it matters: Both profit sharing and equity are ways to incentivize your team and create more alignment between company growth and employee returns.
What’s the difference?
Equity: In simple terms, equity is a way of giving your employees a slice of the company's ownership pie through stock option plans and employee stock ownership plans (ESOPs). It can be a way to motivate and align employees with the company's goal since employees who have equity in a business become more than just workers - they become partners in the business.
Profit Sharing: A profit-sharing plan is a way for companies to share a portion of their profits with their employees. One of the main goals of profit-sharing plans is to incentivize employees and ensure that they have a vested interest in the success of the company.
What’s right for your company? Picking between profit sharing vs company stock options (equity sharing) can be really challenging since the question of which one will work for your business doesn't have a one-size-fits-all answer.
Profit sharing can help with employee retention and team motivation and morale, but it is better for companies that are already well established and profitable.
Equity sharing can be a fantastic choice for small businesses that don't have large profits to share, making it a smarter move if you want to incentivize employees to grow the business as well.
Go deeper: Check out our full post on this topic here.
Ryan Hoover on profit sharing startups
I loved seeing this post by Ryan Hoover this week. In the piece titled “Why I’m excited about profit-sharing startups”, Ryan Hoover discusses the growing interest in profit-sharing models among tech startups as an alternative to traditional venture capital financing.
Hoover notes that while venture capital remains dominant, there's a shift towards businesses that can generate profits sooner and distribute these profits through dividends or stock buybacks. He emphasizes that this trend is driven by founders' desire for financial control and reduced reliance on venture capital, along with technological and regulatory changes that make bootstrapping more feasible.
"Founders want to control their destiny, and profitability eliminates their reliance on VC funding for survival."
Quick Hit: Mark Cuban gives back
Outgoing Dallas Mavericks owner Mark Cuban sent an email to Mavs employees informing them of a plan to pay approximately $35M in bonuses following his decision to sell a majority stake of the franchise.