An Anecdote with a Solution?

[Spare_change]

Shortly after I retired from the Air Force, 5 of us banded together and started a company. Relying on expertise learned in the service (satellite engineering and support), we were able to grow a very successful company. We received numerous offers to "fold us in", or "help us grow" - all attempts to buy our expertise and our contracts.

Finally, we decided to sell the company. Our criteria was very simple: 1) A fair price for our value, 2) an active concern for the support of our clientele, and 3) concern about the future for the 304 people who helped us build the company.

We received numerous offers - most of them quite rewarding for the owners of the company. One company offered something different, though - something that rewarded the people who helped us grow our dream.

This company was "employee-owned". They issued stock - stock which could only be bought by employees. They offered stock options to every employee hired, and used options as a motivator and reward package. When somebody left the company, they were required to sell their stock - since only employees could own a piece of the company.

During the negotiation, I flew to their corporate office. While there, I needed to make some copies of a summary sheet I was going to give to their board. I walked into the copy room, and went to the closest copier.

As I studied the copier, one of the secretaries informed me that I wasn't to use that particular copier. It seems the cost of a copy on that machine was about twice what it was on this other one. She explained that, as an owner, she was very cognizant of the cost of doing business, and every employee considered themselves as guardians of the bottom line.

This to the CEO of a company they were trying to purchase!! I was stunned. But, as I learned, this was the prevalent attitude throughout all the employees - it was THEIR company, and they were INVESTED in its success. From the receptionist to the vice president, they were all focused on a single goal - corporate success.

They used stock options as both a reward program and a motivator. If you did good work, you were offered the opportunity to buy X number of shares (at today's prices) up to 5 years in the future. Want to get a loan fast? Tell your banker you need to $10K to buy $20K worth of stock, and that you'll pay him back in three days!!!

Obviously, there is still income disparity. This with more responsibility earned more. But, the employees get a share of the success - and a share of the failure. But, the CEO of the company (the one who founded the company) only owned 3% of the stock so control was truly vested in the employees. As an aside, I stayed with the company for 6 years, at which time I cashed out $4.2 million in stock. That was in addition to the original purchase price. In the interest of full disclosure, the company offered no other retirement/pension plan, but their other benefits (vacation, health care, etc.) was on par with the other offerors.

So, this is the question - is employee ownership an idea whose time has come? Is this a way to shore up the middle class, and to eliminate the crushing costs of pension programs?

Would you be interested?

 

[ChrisL]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

 

[Spare_change]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

Thank you.

This is different than profit sharing, though. You actually OWN a piece of the company - you share in its losses as well as its profits. Even more importantly, you have a say in how the company is run.

 

[ChrisL]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

Thank you.

This is different than profit sharing, though. You actually OWN a piece of the company - you share in its losses as well as its profits. Even more importantly, you have a say in how the company is run.

It definitely would be a motivational factor for employees. You might get some pretty disgruntled ones if your business doesn't do so well though!

 

[Spare_change]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

Thank you.

This is different than profit sharing, though. You actually OWN a piece of the company - you share in its losses as well as its profits. Even more importantly, you have a say in how the company is run.

It definitely would be a motivational factor for employees. You might get some pretty disgruntled ones if your business doesn't do so well though!

I think that's the whole idea ---- maybe those who are disgruntled are the ones who contributed to the company going bad. Besides, if you're disgruntled, and not pulling your weight, you don't get to share in the rewards (no options).

 

[ChrisL]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

Thank you.

This is different than profit sharing, though. You actually OWN a piece of the company - you share in its losses as well as its profits. Even more importantly, you have a say in how the company is run.

It definitely would be a motivational factor for employees. You might get some pretty disgruntled ones if your business doesn't do so well though!

I think that's the whole idea ---- maybe those who are disgruntled are the ones who contributed to the company going bad. Besides, if you're disgruntled, and not pulling your weight, you don't get to share in the rewards (no options).

Yes, but you know how people can be.

 

[Spare_change]

I think it sounds like a great idea. I've heard of companies offering profit sharing before. Unfortunately, I've never worked for one though!

Thank you.

This is different than profit sharing, though. You actually OWN a piece of the company - you share in its losses as well as its profits. Even more importantly, you have a say in how the company is run.

It definitely would be a motivational factor for employees. You might get some pretty disgruntled ones if your business doesn't do so well though!

I think that's the whole idea ---- maybe those who are disgruntled are the ones who contributed to the company going bad. Besides, if you're disgruntled, and not pulling your weight, you don't get to share in the rewards (no options).

Yes, but you know how people can be.

Oh, for sure ... everybody needs something - or somebody - else to blame.

 

[pinqy]

Shortly after I retired from the Air Force, 5 of us banded together and started a company. Relying on expertise learned in the service (satellite engineering and support), we were able to grow a very successful company. We received numerous offers to "fold us in", or "help us grow" - all attempts to buy our expertise and our contracts.

Finally, we decided to sell the company. Our criteria was very simple: 1) A fair price for our value, 2) an active concern for the support of our clientele, and 3) concern about the future for the 304 people who helped us build the company.

We received numerous offers - most of them quite rewarding for the owners of the company. One company offered something different, though - something that rewarded the people who helped us grow our dream.

This company was "employee-owned". They issued stock - stock which could only be bought by employees. They offered stock options to every employee hired, and used options as a motivator and reward package. When somebody left the company, they were required to sell their stock - since only employees could own a piece of the company.

During the negotiation, I flew to their corporate office. While there, I needed to make some copies of a summary sheet I was going to give to their board. I walked into the copy room, and went to the closest copier.

As I studied the copier, one of the secretaries informed me that I wasn't to use that particular copier. It seems the cost of a copy on that machine was about twice what it was on this other one. She explained that, as an owner, she was very cognizant of the cost of doing business, and every employee considered themselves as guardians of the bottom line.

This to the CEO of a company they were trying to purchase!! I was stunned. But, as I learned, this was the prevalent attitude throughout all the employees - it was THEIR company, and they were INVESTED in its success. From the receptionist to the vice president, they were all focused on a single goal - corporate success.

They used stock options as both a reward program and a motivator. If you did good work, you were offered the opportunity to buy X number of shares (at today's prices) up to 5 years in the future. Want to get a loan fast? Tell your banker you need to $10K to buy $20K worth of stock, and that you'll pay him back in three days!!!

Obviously, there is still income disparity. This with more responsibility earned more. But, the employees get a share of the success - and a share of the failure. But, the CEO of the company (the one who founded the company) only owned 3% of the stock so control was truly vested in the employees. As an aside, I stayed with the company for 6 years, at which time I cashed out $4.2 million in stock. That was in addition to the original purchase price. In the interest of full disclosure, the company offered no other retirement/pension plan, but their other benefits (vacation, health care, etc.) was on par with the other offerors.

So, this is the question - is employee ownership an idea whose time has come? Is this a way to shore up the middle class, and to eliminate the crushing costs of pension programs?

Would you be interested?

The difficulty of employee ownership is that the more people involved in decision making, the more difficult it is to come to a consensus decision. Change is slow, what the employees want may not actually be the best for the company, and in times of crisis, there is little capability to make firm decisions.

While the model can work in some cases, that does not mean it will or can work for all companies.

 

[Spare_change]

Shortly after I retired from the Air Force, 5 of us banded together and started a company. Relying on expertise learned in the service (satellite engineering and support), we were able to grow a very successful company. We received numerous offers to "fold us in", or "help us grow" - all attempts to buy our expertise and our contracts.

Finally, we decided to sell the company. Our criteria was very simple: 1) A fair price for our value, 2) an active concern for the support of our clientele, and 3) concern about the future for the 304 people who helped us build the company.

We received numerous offers - most of them quite rewarding for the owners of the company. One company offered something different, though - something that rewarded the people who helped us grow our dream.

This company was "employee-owned". They issued stock - stock which could only be bought by employees. They offered stock options to every employee hired, and used options as a motivator and reward package. When somebody left the company, they were required to sell their stock - since only employees could own a piece of the company.

During the negotiation, I flew to their corporate office. While there, I needed to make some copies of a summary sheet I was going to give to their board. I walked into the copy room, and went to the closest copier.

As I studied the copier, one of the secretaries informed me that I wasn't to use that particular copier. It seems the cost of a copy on that machine was about twice what it was on this other one. She explained that, as an owner, she was very cognizant of the cost of doing business, and every employee considered themselves as guardians of the bottom line.

This to the CEO of a company they were trying to purchase!! I was stunned. But, as I learned, this was the prevalent attitude throughout all the employees - it was THEIR company, and they were INVESTED in its success. From the receptionist to the vice president, they were all focused on a single goal - corporate success.

They used stock options as both a reward program and a motivator. If you did good work, you were offered the opportunity to buy X number of shares (at today's prices) up to 5 years in the future. Want to get a loan fast? Tell your banker you need to $10K to buy $20K worth of stock, and that you'll pay him back in three days!!!

Obviously, there is still income disparity. This with more responsibility earned more. But, the employees get a share of the success - and a share of the failure. But, the CEO of the company (the one who founded the company) only owned 3% of the stock so control was truly vested in the employees. As an aside, I stayed with the company for 6 years, at which time I cashed out $4.2 million in stock. That was in addition to the original purchase price. In the interest of full disclosure, the company offered no other retirement/pension plan, but their other benefits (vacation, health care, etc.) was on par with the other offerors.

So, this is the question - is employee ownership an idea whose time has come? Is this a way to shore up the middle class, and to eliminate the crushing costs of pension programs?

Would you be interested?

The difficulty of employee ownership is that the more people involved in decision making, the more difficult it is to come to a consensus decision. Change is slow, what the employees want may not actually be the best for the company, and in times of crisis, there is little capability to make firm decisions.

While the model can work in some cases, that does not mean it will or can work for all companies.

Like most companies (all?), operational decisions were not taken to the stockholders. Stockholders make policy decisions.