Skin In the Game

Here's an innovative way to motivate staffers: buy them stock in your publicly traded clients.

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Last January, at Resource Interactive's annual meeting, CEO Nancy Kramer and president Kelly Mooney didn't arrive in their usual business attire. Instead, the two leaders of the digital consulting firm, based in Columbus, Ohio, walked in wearing T-shirts and flip-flops from the popular surfwear outfitter Reef. The firm's 125 employees had received similar gear in a gift bag left for them at their tables.

This wasn't because they were announcing Reef as a new client. Instead, they were touting something with more immediate implications to everyone at the company, from executives to the receptionist: a new employee benefit. Called the Resource Employee Equity Fund, the REEF benefit is designed to get every employee at the firm invested--literally--in the clients they work for.

Something of a do-it-yourself mutual fund, the REEF works like this: Each employee is given a single share of every publicly traded company Resource Interactive holds as a client, a list that currently includes 13 companies, including Procter & Gamble, Hewlett-Packard, and Wal-Mart. (In the case of Berkshire Hathaway, each employee receives about 1/100 of a class A share; the stock has traded at $80,000 to $90,000 a share the past year.) The value of each employee's share in the REEF is based on the sum total of these individual shares; it goes up or down with the stock market or if Resource Interactive takes on another publicly traded client. It's egalitarian, too: Every employee who stays one year, regardless of rank, gets the same size piece of the REEF. There's no vesting period, either.

Employees at Resource Interactive already have a healthy benefits package, including a top-notch medical plan and a 401(k) in which the company matches 30 percent of their contributions. They also get a profit-sharing plan, which rewards associates up to 10 percent of their annual salary for meeting sales targets. But Kramer had long sought to create a different kind of carrot for her workers, one that would link their interests to those of the firm's clients. She originally came up with the idea for the REEF five years ago, while discussing incentive programs and the way other consulting firms wooed employees with stock options in their own companies. "I thought, what if we gave our associates stock in our clients' businesses?" she recalls.

On the surface, such a program would appear to be a minefield of tax, legal, and regulatory issues. "People told me it wasn't possible," Kramer says. "They'd never heard of anything like it." The timing wasn't right, either. Five years ago, the digital world was still reeling from the bursting of the dot-com bubble. Resource Interactive itself was rebuilding after a downsizing forced the firm to close an office in San Francisco.

"It's a way of investing in us and validating our work," says one employee.

But Kramer didn't forget about the idea, and in 2003, with her business growing again, she decided to put it into practice. Over the next 18 months, Kramer, chief financial officer Janet Eads, and a team of lawyers and accountants worked out creative ways to resolve the many issues. The total administrative expenses came to about $7,500, and Kramer considers it money well spent. Employees technically don't own the shares; the company does. The employees receive a unit of membership to the fund, which entitles them to their slice of the REEF pie. They can cash out only when they leave the company, and when they do, Resource Interactive doesn't sell the stock; it simply cuts the employee a check.

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