In my previous post on Strategy and Corporate Governance for Small Business, I talked about aligning Shareholder goals with the running of the company. This applies to employee share ownership as well.
When offering employees ownership you are making them shareholders.
Companies sometimes do this in an attempt to retain employees as the primary motive. However, there are issues:
- Shares in a privately held company are not the same as a cash bonus. They are a paper benefit until they can be sold.
- The goals of employee shareholders need to be in alignment with majority shareholders. If they are not then it might not be much of an incentive.
- Employees need to appreciate the value of the shares.
- Management needs to allow employees to actually have a real contribution to the success of the business as co-owners.
When talking to Perry Phillips of ESOP Builders, is it clear that he believes employees should purchase their shares. I agree. Things that are given are not appreciated as much as something you earn through hard work. In addition, I think that this automatically filters out the employees who really are not fully on board.
Employees do not have to pay cash in advance. They can use bonuses or sweat equity to buy them. They can also pay in installments.
Alignment of Goals
However, the most critical aspect is that the goals of employee shareholders and majority shareholders are in alignment. If the majority shareholders goals are income to support their desired lifestyle then the employees should get profit sharing. If the goal is to sell the company at a large gain in x years, then the employees should share that goal.
Most people don’t have much patience these days for the long-term; they want it all now. A small increase in pay today might mean more to them then a large maybe for tomorrow, especially if they really don’t believe in or feel a part of that vision. Again, it comes down to alignment of goals.
Are your key employees key because they share the dream AND make valuable contributions? Or are they just doing an important job and you’ve become dependent on them?
This comes down to figuring out who you really should be hiring; the ones that are most likely to be in alignment with your company’s culture and long-term vision AND who have the right skills. An interview won’t do it. Kim Bechtel of YourHRco, believes that there are better ways to find good employees and traditional hiring techniques don’t work, especially for small businesses that can’t afford to make big mistakes.
Employee Share Ownership Means Ownership
Ultimately, the most important aspect for management/owners to understand is that in order for employees to be engaged in the company and “thinking like owners”… you need to treat them as owners.
This means sharing more information and allowing them to influence decisions as valued contributors… understanding how what they do contributes to the bottom line… their bottom line since they are now co-owners.
This is how you really get employees thinking like owners and sticking it out for the long-haul.