Finding New Ways to Promote Employee Longevity: Q&A with Chris Buttenham

When it comes to retaining top performers, smaller and mid-sized home services companies are in a bind. Money is the main motivator for employees to stick with their current employer, yet most home service contractors lack the resources to take their business public, offer stock options, or simply hand out significant pay bumps.

In the home services industry, where employee turnover is high, contractors may feel as though they are ill-equipped to keep their best, most senior talents in the fold. According to Chris Buttenham, however, contractors have plenty of creative resources at their disposal. As the co-founder of Reins and the co-author of Alternative Equity: The Owner’s Guide to Phantom Stock & Modern Incentives, Buttenham has plenty of practical advice for home service companies looking to incentivize longevity.

CONTRACTOR: Recruiting and retention have been, and continue to be, challenges in the home services industry. We often talk about technicians, but tell us about challenges in keeping other key employees, such as service managers and front-office staff?

Chris Buttenham: There are a lot of factors that can make it challenging. For one thing, the labor market is extremely competitive. The skills developed in a home service company—effective multi-tasking, commitment to detail, customer service, financial acumen—can be useful in a lot of different industries, which means they can easily take their talents elsewhere.

And of course, they are more likely to look elsewhere if they feel underpaid, undervalued and there aren’t opportunities for advancement.

CONTRACTOR: Thinking in terms of commission structures and other similar incentives, what are some of the typical go-to methods to encourage loyalty you see? Do they work?

Buttenham: Commissions and referral bonuses aren’t necessarily bad ideas, but they don’t create that greater sense of long-term investment with the company. They honor achievement, but not necessarily tenure or retention.

Profit sharing structures can often work well, as they tie employee incentives to the performance of the business itself—literally incentivizing employees to promote profitability. But owners should watch cash flow carefully to plan for these programs.

CONTRACTOR: Where do you think a shift is needed?

Buttenham: Home service contractors may not realize the full range of creative, alternative equity models that are available—tools that reimagine what it looks like to tie employee performance and longevity to financial compensation. It’s really a shift in imagination, and a willingness to consider a more modern counterpoint to traditional equity.

CONTRACTOR: What are some examples of these unique methods of rewarding key employees and ultimately cultivating a greater sense of employee motivation, engagement and retention?

Buttenham: One alternative equity that’s proven successful is phantom stock because it gives employees “skin in the game,” but you don’t give away ownership.

Phantom stock shares can be given based on performance or even tenure. Then, whenever they’re ready, employees can cash in their phantom shares for a value that reflects how the company’s doing financially—now or later on when the company sells.

CONTRACTOR: Many companies, particularly smaller ones, may feel like they're not yet ready to consider alternative equity incentives. What guidance would you offer for owners looking to assess whether it’s right for their business?

Buttenham: There are a number of questions contractors can ask themselves to determine whether they are ready for alternative equity. For example, are you currently growing your business—or do you plan to grow it over the next one to three years?

Do you ultimately want to sell your business, step away from it or develop a real succession plan?

Do you have a financial plan and budget in place?

Would the loss of a key employee significantly affect your revenues?

If the answer to these questions is yes, that means you’re probably ready for alternative equity.

CONTRACTOR: How can home service contractors ensure that their incentive plans are working? In other words, after implementation, what are some key metrics to measure success?

Buttenham: It’s important to set clear objectives that will determine whether the alternative equity plan is working, and to regularly check your progress.

These objectives may be related to employee retention, such as keeping turnover rates to a certain level, or holding on to specific top talents. If your incentives include performance conditions or milestones in order for them to be earned, obviously progress towards those goals would be an indication of success. Employee engagement and morale may also be key metrics to watch.

CONTRACTOR: For the contractor curious about introducing phantom stock or some other form of alternative equity, what are some of the initial steps to consider?

Buttenham: A phantom stock program requires trust, and the best way to build trust is with transparency. Make sure you explain clearly how it works. Discuss who’s eligible, how it’s allocated, how it’s vested and how and when it gets paid out.

Create a phantom stock agreement and make sure an attorney reviews it before you have employees sign on the dotted line. It should include both the pros and cons of the program.

Phantom stock programs may not be right for every employer, but they might be the solution many home service contractors have been looking for as they try to retain senior talent in a tight labor market.