Making Employees Owners
Should you share equity in your company with your employees? It depends on what you want to achieve. Here's what three company owners say:
* Yes, because it's fair to loyal workers. Dennis Flynn, Heritage Asset Management, a real estate company based in Dallas; owned by Flynn, his wife, Michele, and 3 employees; 68 employees. "I made the decision three years ago to share with my most loyal people. I wanted people in the company to realize that my son isn't going to walk in all of a sudden and take over. It's not fair to have everybody work hard and in 18 years have him come in and say, 'I'm taking over this company.' So I offered equity to 4 employees. One turned it down because he didn't want the risk of being an owner. Eventually, I'd like everyone to have an ownership stake. I have probably the most loyal, dedicated, hardworking group of people there is. My philosophy is, I'm not going to get rich alone -- we're all going to get rich together. If we don't, then we'll all go out of business together, too."
* No, too many headaches. Cheryl Klein, Walt Klein & Associates, a political-consulting firm in Winston-Salem, N.C; owned by Klein and her husband, Walt; 42 employees. "We're not going to consider it until they start asking for it. Some people we've talked to who have done it say they'd never do it again. It opened up more problems than it resolved. You end up losing control; you have to share in decision making. You're not really sharing the risk to the extent that you were exposed to it when you started the company."
* Yes, as part of succession planning. Jerry McCandless; Evergreen Environmental Group, an environmental-engineering firm in Crestwood, Ky.; owned by McCandless and his wife, Kendrick; 28 employees. Kendrick: "Our employees are given so many options per year they can purchase. The options can be converted into stock when Jerry retires or becomes disabled or dies. This is the first year we've offered the options." Jerry: "The people here have made this business what it is. They're entitled to every penny they get. It's a succession plan for me, but it's also insurance for them. We've had some national suitors talk to us. If they were to acquire us, some of these employees are making too big a salary for what an acquirer would want to pay. This way employees have to put down only 30% of the purchase price, and after one of the triggering events, they can pay the balance out of the company's earnings. If they leave before that happens, I'm obligated to buy back the options at the price they paid. I offered options to my 26 nonrelated employees, and 10 have taken them. I offered them to everybody -- from the person who makes the least to the person who makes the most. My hope was to find out who the believers are, and this has shown me. Next year I'll restrict the offer to those who bought options this year and to some of the new people I hire." -- Ellyn E. Spragins