It's Monday and that means Finance. Instead of taking the traditional approach of talking about setting up accounts or how to read financials, we are in a totally different arena. I, and we, are capitalists and believe one of the failures of this economic model is not bringing it inside the firm.
If it works so well in the marketplace, what if we created an internal marketplace operating on the same principles? If this grabs you, don't touch that dial because today is just the start, we have 7 more shows to help you understand how to create markets inside the firm.
Today we cover ALL of the options available when attempting to provide employees skin in the game. Some of the following choices are beyond where we would go but that is your choice. We are just simply providing the options.
The biggest question is WHY?
"...sharing the business's upside is a smart move. It buys greater concern for the business's performance, greater performance at an individual and group level, and attraction / retention of the right talent"
WHAT YOU NEED TO KNOW
Your objective for creating ownership in the company has 6 general options. We will detail each so you can decide what works best for your long game. BTW - we don't believe you have an option to ignore the list.
The range is from perceived ownership to total control
This ties compensation to performance. It can be individual, group, department, or company wide. What you are saying is your total check is not guaranteed and what you are paid is a function of results. Our Monday Finance track and Thursday people track will spend pend the majority of its time with this option.
This is allocating some of the company's retained earnings at the end of a period to the employees. This can be an immediate cash withdrawal or deferred to a set date. Think of it as employees receiving a dividend on company performance where you control the amount and date of payment.
You know this as a 401K program. The employees have two general choices: to purchase stock or exercise options. Options is the right to buy company stock at a discounted rate at a specific time. The right to purchase is the right to buy at anytime and usually with a discount rate. The decision to provide voting rights is a separate issue.
Similar to a 401k, the employees are not just buying stock as you would through a broker. This is a decision to move fully without qualifications into employees owning some part of the company. The shares are not transferrable and bought back at retirement or departure from the company at an objective price. Many times these shares are not purchased but assigned and just like voting rights, this is an individual decision by ownership.
We have now moved into a different realm. As we noted at the beginning of the show notes, you are moving from providing opportunities and rewarding performance to equalization of results. The purpose behind this approach is to safe guard jobs with the employees being the prime beneficiary. You find this approach in mixed economies, socialist and fascist, and in heavily unionized environments.
This an Employee Trust taken to the next level. This system is not administered by a third party, the company is equally owned by all employees and they run the company.
Since we are professed capitalists, other than describing the last two, we are not advocates for those options because it represents a mindset of equalizing output - making everyone equal while the first four are about providing equal opportunities and result is based on your performance.
WHAT YOU NEED TO DO
We will spend more time on the How-To's later in the series, right now there is only one decision to be made - "What is the long term plan for the business in terms of succession?" Are going to die with your boots on, liquidate, sell, or take it public?
Once that decisions is made, you can decide what is the best approach of creating skin in the game.
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