“The truth is that profit-sharing doesn’t create employee involvement, it requires it.” – Ricardo Semler.
One of the most innovative vehicles through which to provide employee share ownership is a customised Peak Performance Trust (PPT) – a new type of trust that has been
developed by, and is only available through, Peak Partners.
The PPT has been developed specifically to meet the needs of small to medium-sized businesses. If there’s any business sector that truly benefits from having employees that are motivated to think and act more like business owners it’s SMEs. But up until now employee incentive vehicles such as the ones we’ve just looked at have been designed for large corporates they’re complicated, expensive, difficult to establish and administer, and largely inappropriate for smaller privately-owned companies. After fifteen years of working with small and medium-sized businesses and understanding their needs, the PPT was developed to offer smaller companies a tool that delivers all the benefits of a sophisticated employee incentive scheme, but without the expense or complexity. The PPT is simple, effective and good value for the benefits it brings.
With a PPT, the employer creates an investment trust into which it makes contributions on behalf of, and for the benefit of, its employees. It makes a commitment to investing a predetermined amount of money into the trust on a regular basis, contingent upon participating employees achieving predetermined performance outcomes. As the profits increase, so too does the percentage share that employees can benefit from. If profits are not increased, then no further allocation of funds is made to the PPT.
The benefits of participating in a PPT for both the employer and employee can be considerable. This, unlike any other type of employee incentive tool, truly ties the employee’s financial and lifestyle goals to the performance of the company. It is the ultimate ‘golden handcuff ’ for your high performing staff.
The PPT can be structured in two different ways, depending on the needs and objectives of the company. Option One creates a PPT designed for investment in external vehicles, while Option Two creates a structure designed specifically to transition ownership of equity in the company to key employees over a period of time. Using a PPT to fund succession planning offers significant tax advantages.
Option One: PPT for external investment
Option Two: PPT for internal investment
When it comes to designing a PPT for internal investment (or succession planning) there are two options. Option A provides for indirect, or pooled ownership, where the PPT invests in shares in the company and unit holders of the PPT (selected employees) become indirect equity holders in the company. Option B enables selected employees to borrow funds from the PPT for direct investment in company shares in their own names.
Option 2A: Indirect ownership
Option 2B: Direct ownership
From employees to company landlords
One of my clients used a PPT to enable its employees
to buy the building that the business operated out of. Every time the team achieved sales of $1 million, the employer would transfer $100,000 into the trust. A board of trustees was appointed to manage the trust and make decisions about how to invest and distribute the income. The board comprised myself as the independent expert, a legal expert, a staff-elected representative and the owner of the company. When the trust decided to buy the building, all of the employees became joint landlords of the business. The business now pays rent to the trust, from which all employees receive a dividend. Staff turnover in this organisation has dropped to an all-time low, and as an unexpected bonus, staff now take an extra measure of care and pride in their facilities. Ten or twenty years from now, the value of the asset will have increased dramatically and the staff will continue to receive benefits from the income of the trust.
Sydney Office:
