How to Prepare Your Employees for an IPO Windfall
When your company goes public, merges, or gets sold, you, your partners, and your early employees will celebrate a rewarding payday. But more money means more responsibility, and yes, more problems if you don't properly address the issues that accompany the cash infusion.
As Alibaba waits for what could be the biggest tech company initial public offering in history, founder Jack Ma and his executives are preparing their employees to become instant millionaires. Reuters estimates the Chinese e-commerce company's New York IPO could be worth $41 billion to its employees, and Ma has been bringing in experts to counsel his soon-to-be uber-wealthy employees on how to manage their riches.
"The thinking was that if sudden wealth is like venom, giving small doses every now and then was a bit like anti-venom because your company isn't thrown into chaos," a source familiar with Alibaba's incentive plans told Reuters.
Alibaba has been educating its employees about how newfound wealth can change someone's life--for good and bad--for a few years, Reuters reports. "One thing Jack and [former COO Savio Kwan] did was from the early days prepare employees for the effects of having wealth," Porter Erisman, a former Alibaba vice president, tells Reuters. "I remember Savio giving a speech about what money means, and he encouraged people to think of money as something that offered more choices. Those choices don't have to be material goods."
And although the BMW dealership near Alibaba's headquarters said a few of the employees have already inquired about models in orange, the company's color, Ma is urging his employees to buy real estate abroad and invest in startups.
In its IPO prospectus, Alibaba outlined another major challenge that comes with a windfall, Reuters reports: "It may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they remain with us."
If your company is on its way to being sold or going public, make sure you are aware of these issues. Inc. asked HR expert and columnist Suzanne Lucas how companies can go through these events without losing employees. Here is her advice.
Stock lockup and other restrictions
The stock lockup period, which is implemented by your company and its investors to prevent a immediate sell-off that would drive the stock price down, typically lasts 90 to 180 days after you hit the market. Since the terms of the lockup are up to your company and its investors, not the Securities and Exchange Commission, Lucas says you could add a contract that compels your most important employees to work for a number of months before they cash out, buy an island, and start drinking piña coladas.
Reward them with vacation
The road to an IPO is treacherous, exciting, and taxing for everyone involved. Lucas says that after your company has gone public, give your employees extra vacation and encourage them to use it. "I'd bump up everyone's vacation, because if you've got money, now you're going to want to take a good vacation," Lucas says. The move will help them de-stress, feel rewarded, and love you a little more.
Make them passionate
If your employees aren't passionate about what they do for you, they'll leave. Lucas says people who don't technically need the income work because they are passionate about their job. Make sure your employees have enough passion, and if they don't, find out what changes will reenergize their enthusiasm.
Keep up the culture
Going public means your company will get bigger and more formal. You can't let your fun, positive, and productive startup culture give way to a soul-sucking corporate feel. Keep tabs on your employees and make sure they remain happy.
WILL YAKOWICZ | Staff Writer | Reporter, Inc.com
Will Yakowicz is a staff writer for Inc. magazine. He has covered business, crime, and local politics for The Brooklyn Paper and was the editor of Park Slope Patch. He has also reported in the West Bank and Moscow for Tablet Magazine. He lives in Brooklyn, New York.