One of the hardest things for an owner/founder/operator to do is motivate others to perform and grow to their full potential. Watch how the pride and endurance of a race horse transforms a struggling team into winners in this inspiring scene from Seabiscuit.
Equity models are strategic because: “Who gets What” defines“Who You Are!” That is, the way owners share value with those who create it has a profound impact on the firm and the owners’ ability to attract, retain, and reward senior talent.
Private companies often use a variety of innovative tools, individually or in combination, to navigate and conquer major changes brought on by the urgent concerns of affordability, competency, and succession or “equity inflection points”. Continue reading Equity Rules→
Public company equity-based pay practices, such as stock, restricted stock, and employee stock options are often a poor fit for private companies committed to reward leaders for performance and growth and to motivate leadership and capital succession.
Equity based programs that make sense and work well in a public company come with many ills for private companies: they can be costly, tax-inefficient, static, ineffective, and sometimes downright unfair. In the worst case, equity pay practices can derail the owners’ plans for growth and succession.
Dynamic synthetic equity presents a more tailored solution for private companies interested in leadership and capital succession. Restricted stock and employee stock options often distort outcomes for private companies. Consider that:
The underlying stock price in a private company gyrates as owners enter and exit from, for example, a living or a death buyout or even a recapitalization. Stock price can jump 50% – unjustly rewarding the owners of true equity awards.
Labor costs are the largest expense for many organizations and so should be carefully and responsibly managed; every salary action should be taken seriously. Nothing affects organization culture more than how people are paid.
Less experienced managers and leaders may use salary actions as a way to keep staff happy thinking, perhaps, that they are doing someone a favor or following an easier path. It turns out, though, that the easy way out can leave employees confused, just as dissatisfied, and questioning management motives and decisions.
A good strategy is to use salary actions to communicate important information to employees and to help supervisors and unit managers become better leaders. It takes significant time and effort to design, develop, implement, and institutionalize an effective salary administration process (see Figure 1) but is well worth it. This post presents steps responsible leaders can take to administer a fair and rational salary action process (see Figure 2).