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Last Update: Saturday October 21, 2017

Key Idea: Give Employees Ownership

Rick Valencia's Company, ProfitLine, uses an Employee Stock Ownership Plan.  Rick believes that employees want to own a piece of the company.

Key Question:

A: 

Freddie and Rick are constantly teaching employees about the meaning of ownership. They run formal classes and informal on-the-spot sessions.

Q
: What does Meeko know because she is being taught as an employee-owner?

A: She knows everything. There is open-book management plus many rules that are to be followed by those in leadership. As the manager of her location, Meeko has to measure results and turn those numbers into the main office. Meeko has been taught the meaning behind the numbers which is why the requirement to do the work does not feel heavy-handed. It feels right. If you own a business, you need to know your cost of labor, your cost of raw materials and understand that when the total sales are added up at the end of each day, the thing that counts is not sales but profit.

We know that a learning company is a growing company and that great business owners are teachers. We heard a futurist say that today there is no difference between working and learning.

Too often the easy road is taken and an employee is simply taught a task. This is short-term thinking. Employees need to be taught how to do their job but they need so much more.

Ray explained that there are rights and there are responsibilities within the ESOP citizenship. It is real work to teach this.

Just to know and explain the financials is a challenge, and do strategic planning, too! If employee-owners have such rights, then the founder/owners have the inverse responsibilities.

That's a real educational challenge -- for both student and teacher! Most of us do not look at ourselves as teachers. However, in the best run businesses that we have studied here, the founders/CEO's were great teachers and mentors.

And what better role for a founder/owner in their twilight years (60 to 99 years old) to begin developing and teaching people about the succession plan and one's exit strategy.

Q: There is a risk in assuming the role of a teacher or mentor. We think we have to be the expert, know the subject in detail. But is that the role we are being asked to take?

A: No. Know-it-alls have never been attractive to anybody at any age, and that is mostly because the attitude is hiding behind an insecurity for knowing very little. The Socratic method of asking questions and exploring possible answers together is the role we are being asked to take. Remember when you were in your 20's you had all the answers, and now that you are older, you have all the questions.* Explore answers to the questions that are asked by our bankers, suppliers, customers, and prospective customers. All the questions and answers become part of your working document (business plan). That working document is a pre-cursor for a formal ESOP, some kind of employee stock ownership plan, or even a SCOR.

Think about it

Why does it seem, at least in the USA, that truly within one's lifetime, we all have ideas for businesses? What would it mean to your employees if you offered them ownership? Would an ESOP work for you?

Clip from: Employee Stock Ownership Plans (ESOP)

Meet Ray Smilor, Rady School of Management, Univ. Calif. San Diego

SAN DIEGO: In this special episode you will meet many people who understand Employee Stock Ownership Plans (ESOP).   ESOPs are keys to the future for any growing business.  Though each word is quite operative, the most important is ownership.

To understand ownership, we have to understand something about the value of what is owned. It is a lot more than a  business valuation.  It is about business sustainability. 

Ray Smilor and Dr. Robert Beyster (SAIC) are experts on the subject.  Once a person is actively participating in the bottom line or the profit line of the business, once they are vested, don't you think they'd act differently and care more? Ray Smilor says that typical productivity increases 4-5% per year.

What would that do to your profit line?

Go to all the key ideas and videos from this episode...

ProfitLine, Inc.

Rick Valenica, President

9920 Pacific Heights Blvd.
Suite 200
San Diego, CA 92121
8584526800

Visit our web site: http://www.profitline.com/

Office: 8584526800

Business Classification:
Business services

Year Founded: 1991

Give Employees Ownership

HATTIE: Hi. I'm Hattie Bryant. In the USA, there are over 25 million people who've started and are growing the business of their dreams.

They're not employees. They're business owners. Ownership is profoundly part of the American psyche, and today, we'll go inside three small businesses where that ownership is being shared. In one of these businesses, everyone is an owner, even entry-level employees. You'll hear from people like Meeko, a college student who already has her own retirement program in place. It's called an Employee Stock Ownership Plan, ESOP for short.

Unidentified Man #1: That's got to be fully integrated based on...

HATTIE: (Voiceover) These employees were given shares in the company after just 90 days on the job. Thousands of entrepreneurs have learned -- to attract, inspire and keep great people, it's good to give everyone a piece of the action. We began by speaking with Dr. Ray Smilor, president of the Beyster Institute. This non-profit organization provides free and low-cost consulting and seminars to business owners who want to make ownership part of their employees' compensation package.

RAY SMILOR (President, Beyster Institute): Research does show, and there's a lot of studies that do, that various forms of employee ownership, sharing stock, if it's combined with engagement and involvement, actually enhance and increase the productivity of a company at least 4 percent to 5 percent a year.

FREDDIE THODE: ESOPs are a fabulous vehicle.

RICK VALENCIA: We do have a stock option plan and we do reward people very generously with stock options right off the bat. FREDDIE: Your employees are what carry you on.

NED LESTER (Founder/CEO, Maxim Systems): The ownership is what will entice people to come.

FREDDIE: Founders get things rolling, but employees are the people that really are the implementers.

NED: To be able to offer a part of the company and part of the ownership of the company is a very significant attractor to good quality personnel.

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