For HVAC Companies, a Phantom Stock Plan Can Revolutionize Retention Packages

The looming shortage of HVAC technicians, plumbers, and electrical workers is no longer an impending workforce issue: it’s here and it has created disruptions in the skilled trades industry.

Many smaller and midsized commercial and residential service businesses have been rethinking their recruiting methods to overcome the loss of more skilled workers due to retirement. But recruiting is just half the battle. You must also develop strategies to retain the more experienced workers you do have on staff.

The cost of a high turnover rate is more than just losing one employee. It can actually cost the average business owner one-half to two times the employee’s salary. For HVAC companies, the cost is higher the more experienced the technician is. Recent reports suggest that losing a high-level HVAC technician can cost the owner up to 400% of the employee’s salary.

In addition to the cost of the hiring process itself, the knowledge loss that occurs when a trained and seasoned technician leaves can be devastating to smaller companies with fewer employees. Not only do you have fewer employees to get work done, but you have fewer employees who have the skills and understand the work and the industry.

Preventative Retention Plans

Most contractors understand the very real issue of a skilled labor gap and have developed a retention plan to keep their best talent.

Many home service companies have traditionally offered cash payments in the form of a lump sum bonus, more paid time off (PTO) or salary increases based on performance in an attempt to keep their best talent. But if other contractors in your service area offer similar incentive packages, how can you differentiate your company from your competitors?

Additionally, smaller companies don’t always have the capital to offer more pay or a better health insurance plan. That makes it difficult for your small to midsized home service company to match the incentives that larger companies in your area offer.

Strong incentive packages that include equity-based bonuses, such as phantom stock, have often been used by white-collar employers and larger contractors as a way to keep their most seasoned and efficient employees. But this hasn’t been an option for smaller businesses.

Increasingly, however, small businesses are able to craft a unique and innovative benefits package that includes a phantom equity program. These packages not only help level the playing field, they also allow your home service company to stand out from the crowd.

Equity is No Longer a Phantom Option

Equity-based bonuses, such as phantom stock, or phantom equity, is a deferred compensation plan that gives employees a cash payment based on the value of a company’s stock. But, since most small home service businesses aren’t listed on the S&P 500 and rarely have access to these types of financial alternatives, issuing this kind of incentive hasn’t been an option.

In the past, smaller companies had to rely on traditional incentives in the form of cash bonuses based on performance or by offering more paid time off or holiday time.

But, with a modern equity solution, such as Reins’ Modern Agreement for Rewards and Equity (MARE) program, smaller companies can now offer incentives that only larger companies have been able to offer.

Phantom stock is a promise to pay a bonus equal to the value of a hypothetical number of company shares. It is designed to provide employees with an incentive without giving the employees actual stock ownership.

By offering a phantom stock option, the average contractor can provide his employees with a buy-in that was only available to the largest residential service companies in the country. Home service contractors can target employees with critical positions, such as those with years of experience or a plethora of important skills and responsibilities, and provide them with a similar incentive that they could earn with stock options at a larger company.

With phantom stock, your employees have a stake in the potential success of your company. It works because payment is made after a set delay, such as an agreed-upon time period or in the event of the sale of the company or retirement.

A Win-Win Situation

As a small business owner, offering your employees enterprise-level benefits may seem like a pipe dream. But with the growing category of phantom equity, it’s an affordable option when compared with profit-sharing or traditional equity programs.

By choosing the right phantom equity provider, you can scale your options based upon your company’s ability to grow. Compensation to your employees is tied to your company’s value, and unlike traditional stock options, you don’t have to set aside actual shares.

If your company is allowed to set aside phantom equity, you can offer your employees a cost-effective incentive to help you build your company and create long-term value for both you and your employees.

Offer a Sense of Investment

In addition to the advantage of having a delayed incentive program, offering phantom stock gives your employees a sense of investment. Not only does it align the interests of the employee with the long-term interests of your company, it also incentivizes the employee to think and act like owners or critical managers.

While adding a phantom stock option may increase the complexity of your incentive program, once it is explained to employees, it is generally widely appreciated. If your employees understand that their performance directly affects their phantom stock compensation, they will make decisions that better align with growing and scaling your business.

When your employees make decisions that boost your tangible value, they will receive a share of the profits. A successful phantom equity plan results in increased productivity, boosted morale, and reduced turnover.

It’s also something that your direct competitors probably haven’t considered.

This can give you the upper hand when developing a truly revolutionary incentive program to retain your best and brightest talent.