|
|
|
Are Shares Better than Cash for
Rewarding Team
Members?
“How workers are paid is how
they think” is a favorite mantra for employee incentive specialist, John
Day.
He says if people are paid for a nine-to-five job then they will simply
work from nine to five. But those who are paid like an owner, with
incentives such as share and bonus schemes, will behave more like an
owner.
Day is a chartered accountant with Kenneths Group which focuses on
employee remuneration and incentive packages. He draws from his own
background as the son of a dairy farmer to make an analogy between a
sharefarmer and a factory worker.
“I believe a sharefarmer has a lot more at risk financially and has
longer working hours but is prouder of his work than a factory worker,”
says Day.
The difference is that the sharefarmer can see the milk in the vat at
the end of each day. He can see the product of his work and shares in
the benefits to the business.
Day says “employees are the most important part of a business” and
incentive schemes should be used to reward, retain and motivate them and
to help “build respect, transparency, trust and teamwork.”
Day claims employee incentive
programs have helped some of his clients improve profitability by 50 to
70 percent and reduce staff turnover from 14 percent to 4 percent.
Equity-based incentive schemes include rewarding valued team members
with equity in the business, and shadow share plans (otherwise known as
phantom or replicated share plans) whereby a team member is paid a bonus
when certain performance criteria are met.
Although such schemes are not widespread in the smaller business sector
there is an increasing level of interest.
In Australia, for example, a survey of 600 businesses employing fewer
than 20 people which was undertaken earlier this year by CPA Australia
showed that 1 percent of businesses offered an employee share plan and 4
percent had an equity scheme in place.
Of the remaining respondents, almost a third said they would consider
introducing share plans or equity schemes to keep valued team members.
Other popular methods of rewarding good performance in small business
are praise and recognition.
Gary Scarrabelotti, a specialist in employee ownership incentive
schemes, notes that key team members are much more mobile in the current
employment environment. Unless there is a tangible reason to stay,
companies risked losing them perhaps at a growth time when they were
most needed.
“Business have to give valued team members a reason to stay in the
company and a mechanism by which they can share in the growth,” says
Scarrabelotti.
Equity-based incentive schemes are more common in technology and
services sectors and high growth start-up businesses.
Those company owners who shy away from them usually do so because of
their reluctance to dilute their equity, and/or their aversion to
chartering unknown waters. This is particularly because of the
complexity of the legal, accounting and taxation issues involved.
Scarrabelotti notes that
sacrificing equity to team members might mean less equity for the
business owner in the short term, but a far greater value for a smaller
share in the longer term if the company prospers.
He adds that there are tax advantages for both the employer and team
members.
Scarrabelotti concedes that offering equity in a business is not a
simple process because of the legal requirements that have to be
satisfied. But this needs to be weighed up against the value of
retaining good team members and boosting morale and productivity.
Valuing shares that are not listed and setting an acquisition and sale
value in the event of someone leaving the company are among the basic
hurdles that need to be overcome, according to Scarrabelotti.
He says these issues can be resolved by creating an ‘internal market’
within the company in which shares can be bought and sold within a
specified period of time.
Due to the complexity of the issues involved, small business owners will
need professional assistance from accounting and legal practitioners and
there is a large potential market for you to tap into as an accounting
professional.
There is no cheap solution, but if you want the business of smaller
operators as an accounting professional you can opt to negotiate
according to the ‘financial firepower’ of your prospective clients.
You can convince the business owner that if they are committed to
promoting a company culture of shared ownership, the cost of putting the
appropriate mechanisms in place should be seen a strategic investment in
their team members, their most valuable asset, and long-term growth and
profitability.
|
|
