Full Pocket Is Managers’ Carrot On Stick
“Where your treasure is, there will your heart be also.” Matthew 6:21
Today, in the business world, we simplify by saying: “where the pocketbook beckons, the spirit will follow.”
Q. In your last column you emphasized the importance of feeling like an “owner” of the company for which you worked. However, only one of the techniques described for imparting this feeling involved financial rewards like those enjoyed by actual owners. Are you saying that only a small part of the ownership equation involves the ownership of stock?
A. Absolutely not. We emphasized the non-monetary aspects of the “ownership” role played by managers simply because so little attention commonly is paid to the important psychic feeling of ownership. But the pecuniary “piece of the action” enjoyed by proprietors must also be a piece of the “package” offered professional managers.
Entrepreneurs enjoy equity from day one. Traditionally, managers never got an opportunity to participate in stock ownership of the firm.
These days good superior management is essential to the success of any enterprise, and to get this type of talent firms are having to pay more than a nice salary and some “plain vanilla” benefits. They want in-the-pocket rewards like those afforded the proprietors of the venture. And they are getting what they seek.
It’s currently estimated that somewhere between 45 and 50 percent of all employees enjoy stock options, a good surrogate indicator for actual stock ownership. This percentage is up from only 25 percent just five years ago. Furthermore, the percentage is actually higher for companies not classified as “small businesses.”
Over 90 percent of the Fortune 1000 firms use stock options, according to a survey by TPF&C, a Towers Perrin Company. The growth in the number of firms offering ownership to employees is actually accelerating. The number of stock option plans grew by about 1,000 between 1990 and 1997, but more than 60 percent of that growth occurred in the last 14 months.
Another survey by Ernst & Young shows that about 42 percent of “fast growth entrepreneurs” share ownership with employees as well as managers. The National Center for Employee Ownership reports that about 16 million employees benefit from stock ownership through stock bonus plans, 401K plans, broad stock option plans and formal Employee Stock Ownership Plans.
The reasons for the explosive growth in ownership entitlements are pretty clear. First, employees want it. While wages and benefits offer security (the old “social contract” between employers and employees), actual stock ownership promises opportunity. Managers and key employees seek wages as payment for work that’s been done; ownership entitlements are payment for what they’ll do.
Equity sharing programs give the talent-providers an opportunity to share the paybacks traditionally reserved for the talent users.These days workers are spending a great deal of time, money and energy honing their profit-making skills. Many of them have particularly valuable abilities as knowledge worker, technicians or “people handlers.” For critical talents, it is a sellers market; and the sellers are looking to share in the spoils of the success they produce.
Secondly, employers are beginning to appreciate what “more than money” can buy. Studies by the NCEO reveal that companies with employee owners grow eight to 11 percent a year faster than they would have if no ownership was granted. Other studies suggest that stock price performance of public companies with employee ownership is significantly better than that of firms with no such involvement.
Indeed, a 1995 study at the University of Baltimore showed that fewer than one out of 100 ESOPs were terminated because of the bankruptcy of the plan sponsor. An Employee Ownership Index created by American Capital Strategies, an investment banking firm in Bethesda, Md., reflects the superior performance of 350 public companies with at least 10 percent broad-based employee ownership.
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The following fields overflowed: CREDIT = Paul Willax The Spokesman-Review