Employee Ownership of Your Company - When & How to Do it Right
Kim Kovacs, CEO of OptionEase (http://www.optionease.com/) explains how employee ownership works. Watch this for tips on the best way to execute employee ownership, from your company’s launch to your exit.
- Determine the overall strategy for your company
- Involve your employees in the exit strategy
- ESOP- offering employees shares as part of their salary
- Performance option- equity becomes available based on employee achievement
- PRO TIP: SecondMarket.com- platform to trade privately held stocks
So employee ownership is a big decision. So you were starting at your company, you’re the sole owner of your company. You may or may not be incorporated. At some point you’re going to have employees and you have to make – start making some decisions about those employees. And what’s interesting about employee ownership is it can work really well or can work really poorly, and so you need to know how to do it right.
And so one of the things that I always coach or mentor with you know entrepreneurs since they’re considering this is that, what is your strategy? You know, are you trying to grow, are you trying to add new products, are you trying to expand your business. You were motivating your employees.
So you need to consider the strategy first before you just go out and start writing people you know shares of stock in your company, because that will actually help you decide on how you want to compensate them or how you want to include them in your equity plan. So there’s a lot of different ways to get your employees involved in stock. They can go buy it you know if you’re going to be offering it for sale. You can include it as part of their compensation package.
What we found really actually fascinating and really productive right now is called the performance option. And so what that means is that you have an employee let’s say they’re in sales and you want them to sell a million dollars worth of product. Well, they get an option or a right to buy into your company if they achieve that goal.
So what’s great about it is that you can get them excited about the forward movement of your company, get some ownership which means that they’d have pride in the company and things like that without actually having to give them the shares right off and account for them.
The other thing about equity and ownership and involving your employees is your exit strategy and it’s really important to let your employees know what that is because they’re working for a day when they can cash in that equity, right? And if there’s no market or you’re not going to public or you’re not going to sell, then that kind of limits their ability to get liquidity off of that equity, and so you really need to be open and communicate with your employees about what those strategies might be.
And there’s one that’s come up recently called SecondMarket, and in fact Facebook used SecondMarket before they were considering going public. And so it allowed employees an opportunity to liquidate some of their stock as they needed to. And so it’s a great opportunity for those employees.
So let’s say you’ve had a business for a while and you don’t want to sell it to a stranger, you know, maybe you have 50 or so employees that have been there for a long time. So this is called an ESOP which is an employee stock ownership program and it’s a way of exiting your business but then having your employees own it up to a 100%.
So there’s a lot of things that you can do for employees and getting them involved in your company as far as an ownership position is concerned and there’s a lot of great tips and tools and I hope this has been helpful.