Q&A: The ins and outs of alternative equity with Reins

This story was written in partnership with Reins. Learn more

The growing importance of retaining top talent has driven the need for powerful incentives. But independent contractors often lack access to affordable tools to retain key employees. 

I chatted with Reins CEO Chris Buttenham about how contractors are offering ‘phantom stock’ — a flexible alternative to real equity — even if they don’t plan to sell, structuring profit-sharing plans, and more. 

Below is our conversation, lightly edited for clarity. 

Reins offers ‘alternative equity’ solutions to contractors, which we’ll dig into. But first, how do you think about what you’re doing at a high level?

Contractors have heard of these things. Incentives are out there, but the only way to do them is through a lawyer. They’re complicated, and a lot of the incentives aren’t very accessible — they suck. 

The other part is that there aren’t many affordable, accessible ways to increase the visibility of these incentives. Often, employees don’t actually understand what they’re getting and what they need to do to earn them, which makes it hard to achieve the outcomes that contractors want: Growing the business, growing profitability, and retaining employees. 

I understand that contractors can design both ‘phantom equity’ and profit-sharing plans with Reins. Do you see them leaning more towards one or the other?

Most contractors come to us because they want to incentivize one or two people. They might have a handshake agreement with their GM or a long-tenured tech for some sort of equity, but there aren’t many affordable ways to spin that up. But then they end up expanding that to more employees, and almost always want to layer in a profit share, which is used more broadly than equity. 

Is there a most common structure that contractors use for equity and/or profit-sharing?

On average, contractors will choose an equity pool equivalent to 15 percent of the business, paid when the business sells. That’s the most frequent plan design. 

Profits are similar; we’ll see anywhere from 10 to 15 percent of profits shared on a quarterly basis, usually anchored to a ‘triggering event,’ like hitting a 15 percent net profit or 60 percent gross margin goal. And while it can vary, those are generally shared equally among the employees participating. 

How do you approach these conversations with contractors who don’t plan to sell? I’m assuming they lean on profit-sharing?

We talk to contractors like that all the time, and equity is still actually a good solution — you just pick a different ‘payment trigger,’ which could be a revenue or profit margin goal. And once that’s hit, the equity turns into cash. But if not that, and a sale isn’t likely, many will opt for shorter-term incentives like profit sharing.

Why does this matter if people already have a profit-sharing plan in place?

Visibility. Often, they’ll have an incentive, but it may not be formal. They just ‘told’ the employees they’ll get a bonus every year if they hit 13 percent net profit. But the employees don’t know if it’s real, so it’s about visibility. 

With us, everyone can see on our mobile app what needs to be done to drive the goals that result in dollars in their pockets, and we give owners the ability to update and communicate around them, so it just legitimizes the whole thing. 

What else do you think is important, topically speaking, about these types of incentives?

I think there’s a significant cost to doing nothing. Often, the contractors we work with are feeling some emotional pain because they just lost an employee, for instance. It’s almost always a reactive move. But the cost of replacing an employee can be anywhere from 50 to 200 percent of their salary. 

I think it happens because incentives are done poorly, without proper administration, and they aren’t actually yielding the fruit that they should. Owners give equity because they want people to stick around, think like owners, and think about the company more broadly. But you don’t get the benefit of rallying the team around a common goal if incentives aren’t done right. 

This story was written in partnership with Reins. Learn more