The Counsellor: Wealth sharing mechanisms
Vivek Paranjpe, Consultant & Strategic HR Advisor to Reliance Industries answers professional and ethical dilemmas faced by our readers at their workplace.
I am the HR head in a medium sized start-up company. We have recently started and registered and we are keen at incorporating a wealth-sharing mechanism for our employees. What are the different options that I have for long term equity based programs? Do you think this is a good idea and what are the possible issues these plans may bring up?
It is difficult to respond to your query since the information provided by you is not adequate. It is not clear if you are a publicly listed company or not. If you are not a public limited company with shares disbursed through the stock exchange route, what mechanisms do you have for valuation of your equity base? I am not even clear if you are already a profitable company. I am also not clear what the size of your company is and which employee segment you have in mind. A lot also depends on what business you are in, and I am not clear about that too. I can only say that since you are a start-up, it may be a bit too early to start thinking of equity based programs.
To begin with, you need to have complete clarity on what you want to achieve. Without well stated objectives, it may not be right to conceive a program. You may have multiple objectives to achieve. Ask yourself questions like: Is it the retention of people that you want to achieve? Is it only about sharing of success/wealth with your people? Is it about creating a sense of ownership in the minds of few? Depending on a combination of what you want to achieve and the stage your company is at, there are several options available to you.
If it is just about wealth sharing, you can have an aggressive variable pay program with considerable up side as well as some down sides linked to the individual or company’s performance. You may also consider a performance bonus program over and above the normal committed compensation, which is linked to the company’s performance as well as individual’s performance.
If your focus is on creating ownership, some equity participation of senior leaders can be considered, it all depends on how you are structured and what the long term intent of the owners is. Employee stock option programs will certainly be an option, however depending on the stage of the corporation, the desirability of such programs can be determined.
If retention of key talent is the sole objective, you may consider pure play cash programs in the form of aggressive retention bonuses, deferred payments linked to the milestones and performance, long term loans for creating assets, etc. This will, to a very large extent, depend on the cash that you can spare for such programs.
While monetary programs are important, I always believe that creating a sense of ownership amongst your people is more important. Questions that you need to ask are: Are the employees proud of their association with you? Do they feel empowered? Are they part of the decision making process? Are they recognized for their good work done? Do you delegate adequate authority to them? Do they enjoy adequate freedom?
To sum up: There are multiple ways in which you can share success and wealth. What you should od depends on the clearly stated objectives and the stage of your corporation in its life cycle. The monetary programs on a standalone basis have limited success. You need to combine them with the emotional connect, aggressive development plans and growth opportunities. In short, take a holistic view.
You can post your questions to Vivek by writing to email@example.com