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Turbo-Charge  Performance Improvement by Moving Beyond ESOPs

It is encouraging to know that employee ownership is becoming increasingly popular and more widespread. According to Chief Executive Magazine the number of worker-owned businesses in the US is growing around 6% per year and such businesses now account for 12% of the private sector workforce. Apparently, this is due to initiatives “to empower their workforce employees by selling their stock to an ESOP or similar worker-owned arrangement” and/or “from founders wishing to reward employees while cashing out of their business.”   

Yet, notwithstanding such developments, difficulties remain. The article identifies 2 major dilemmas:

  1. Private companies lack the public trading capability that listed companies use to motivate employees;
  2. Governance “challenges” if subsequent owners are unwilling to continue running the business.

Then, presumably as solutions to these dilemmas, the article offers two case studies. The first describes the transformation effected by a shared compensation system at Johnsonville Sausages; and the second reveals how, over 30 years,  Burns and McDonnell, grew from 600 to 5,500 employees (816%) and increased revenues from $40 million to $2.6 billion (6400%) as the result of an ESOP. Then, despite this example of extraordinary growth that most organisations can only dream about, the article simply concludes by identifying the upside and downside of ESOPs. So let me add to the subject.

The idea that greater ability to trade shares motivates employees is tenuous at best, especially at the lower levels. When I worked for a company that listed, we expected most of the staff would immediately sell or “stag” their shares and built this into the listing price and our forecasts proved to be correct. Only those well enough off to not regard shares or share options as a potential cash windfall will consider them as an investment and elect to hold on to them. Thus, if motivating employees means encouraging them to think like owners, giving them all shares is a busted flush – a dog that doesn’t hunt.

Equally, expecting employees to buy shares, is also unrealistically optimistic. Both approaches make it likely that the bulk of employee shares will end up in the hands of top management. This may well accentuate management focus on “increasing shareholder value.” And we all know how that pursuit, and the failure to recognise the other stakeholders, has been discredited by recent history.

ESOPs unquestionably offer a convenient exit strategy for entrepreneurs and small business owners. Yet introducing them solely for this purpose can make them seem expedient and cynical, and I suspect that is when “governance challenges” arise. Not least because it typifies the extent to which employee interests are otherwise generally ignored. Employee ownership does entail a different organisational culture and, consequently, trying to introduce it solely for such purposes will create issues. As the case study illustrates, the benefits from an ESOP are remarkable. It therefore seems ridiculous not to introduce them as a permanent feature and a better way to structure your organisation.   

Yet there is an even better way. The thread running through both dilemmas is equity, and the assumption that everything revolves around share ownership. That doesn’t have to be the case. If, as the ‘Every Individual Matters’ Model does, you offer your employees “ownership” without shares, simply by virtue of employing them, you can offer any and all of the benefits of ESOPs without any of these dilemmas. Furthermore, the model is universal and offers:

  • The same benefits to all your employees
  • The same benefits to any organisation– rather than just the private sector the article’s statistics highlight
  • A shared compensation model that matches – and could even exceed – the benefits of both case studies.   

So, if you are looking for transformation that will turbo-charge your organisational performance and deliver the scale of improvement described in the article, and without the degree of difficulty it cites, you need to explore how the ‘Every Individual Matters ‘ Model will help.  

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