Whose Company Is It Anyway?
Results from the October Inc. FaxPoll
The majority of respondents favor sharing equity with employees, but most don't practice what they preach.
Are you for or against giving equity to employees?
For 73% Against 27%* * *
If equity is offered to employees, they are most likely to . . .
Work harder and become better team players 69%
Consider it just another perk and get used to it 21%
Insist on more control over day-to-day operations 16%
Become short-term-profit oriented instead of focusing on the long term 8%
Cash out as soon as the stock goes up 2%* * *
The idea of giving employees equity seems to be a popular one, with most proponents focusing on the idea that it will increase productivity, performance, and motivation. Seventy-three percent of companies with 10 or fewer employees favor sharing equity; 91% of those with more than 100 employees do so as well, compared with 63% of companies with 11 to 100 employees. Perhaps a company needs to be big enough for the equity to be meaningful, or small enough for it to be necessary. Start-ups in particular may need to use equity to attract and keep employees who are willing to take a risk. "Employees help build the business and deserve a stake in its success." Most of those not in favor of granting equity focused on the requisite loss of company control "for very little gain." Also, some said having multiple stockholders "unnecessarily complicates management decisions." And who took the risk to start the company in the first place? "Employees aren't taking a risk, so there shouldn't be any equity rewards." Some react negatively to their employees' sense of entitlement. "The problem is, they expect it. Nobody gave it to me." Most employees, some said, are focused only on short-term benefits. Many spoke from the experience of trying to give employees equity and getting negative results. "We went from a competitive, healthy company to one in which everyone was the boss. What a disaster!" Others think that while they're willing to share equity, "there must be some better way to motivate employees and still retain control of the stock."* * *
What is the single most important long-term motivator for employees?
Sense of mission and purpose 35%
Feedback and communication 21%
Raises and salaries 16%
Percentage of ownership 8%
Performance bonuses 8%
Profit sharing 7%* * *
Given the support for sharing equity, it's rather surprising how low most respondents rank it as a motivator. Most think things like sense of mission and good communication motivate employees far more than equity or other monetary incentives. "Without a mission, the rest of this stuff means nothing," said one. But that begs the question of whether employees who own a piece of their company have a stronger sense of mission because of it. Those in favor of sharing equity were more likely than those against to say that having a percentage of ownership is an important motivator (11% versus 2%). But 11% isn't all that high for a group of purported sharing-equity supporters. Those against granting equity were more likely to choose raises and salaries (32% versus 11%), consistent with the view that employees are more short-term oriented.* * *
At your company, which of the following are offered to employees and which do you think effectively motivate them?
|Offered to all employees||Offered to key employees||Effective*|
*Percentage of those who offer the option who consider it effective.
Note: Multiple responses account for total percentages above 100%.
Supporters of sharing equity are more likely to offer the equity items (stock options, ESOPs) or the equity-related phantom stock. Detractors are more likely to offer bonuses and profit sharing, consistent with the contention that employees want short-term rewards. Those on both sides of the issue may have been affected by their own specific experiences. Anti-equity respondents who had tried the equity measures were more likely to say they were ineffective. But the opposite was also true: pro-equity respondents were more likely to report effective results. Although the majority of respondents favor sharing equity, very few actually do. Is equity sharing just a given of modern business lore? According to Chet Borgida, a partner at Grant Thornton in New York City who specializes in capital markets, it may be that equity plans get really good public relations among company owners. "They read in the Wall Street Journal about a company producing 100 millionaires and think that sounds like a really good idea." But when it comes down to actually doing it, many are reluctant. -- Christopher Caggiano
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