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Does even a taste of ownership make a difference?

                 How about incentives for employees all the way down the line and through the corporation? How do we align them to the goals and strategies of the enterprise?  Obviously for the appropriate individuals, a bonus program aligned to the department’s goals is appropriate. But how about awarding stock options to all employees? 

                Tech companies, particularly early stage and startups, still award options aggressively.  Even with fewer IPOs than a decade ago, the dream of shared wealth certainly is not dead.  We should be aware of the power of that dream, and bake it into our employee incentive plan to attract and retain the best available, even if the reality of instant wealth from exercise of stock options no longer matches the frothy days of a decade ago.

                I discovered the power of employee feelings of ownership early in my management career, establishing an employee stock ownership plan (ESOP), once popular as incentive compensation as well as a tax write-off for corporations and even a way to slowly transfer ownership of a company from the founders to the employees.  These plans are not as popular today because of their complexity and difficulty to manage, lost in favor of simple stock option plans. 

[Email readers continue here…] Each month, at the monthly company lunch for all, I’d greet everyone with “Hello shareholders”, and proceed to show the assembled throng slides of high level financial statements, pointing out progress against plan.  That form of open book management surprises many, but if the employees are stakeholders with a taste of equity, why not underscore the value of that equity by treating them as cohorts?  Yes, sometimes the news is not good.  They should know this, and from you not from the rumor mill. Your fear that the confidential information may get out to the industry competitors should be tempered by the fact that you are not giving out the secret sauce, just the results of the past period’s performance.  All public companies including your public competitors must do this in greater detail each quarter, and it rarely damages their ability to sell into the marketplace. 

               Would bad news drive your best employees out the door?  Perhaps. But it is my experience with many companies that empowered employees, treated with respect and shared knowledge, will go far beyond expectation in remaining loyal to their associates and their employer. 

                And think of the time saved around the virtual water cooler if there are far fewer rumors to pass among your employees.

                So I think you know where I stand on this.  If your company is not a “life style” enterprise and you aim to sell it someday for liquidity, or even aim toward an IPO, then you should have some form of stock ownership or shadow ownership plan for your employees.  I know from my own experience that  no matter how good you think you are at company-building, it is those who surround you with talent that make the difference and add extraordinary value to create an eventual liquidity event.  Whether out of guilt, thankfulness or simply to be fair, you should plan in advance for sharing the profits from a corporate sale with those who helped you to the finish line.

  • Hi Dave, is there any resesrch to support your contention that employee ownership contributes to a startups success? It seems as though it should, but has anyone studied it to find out for certain?


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