Creating an Ownership Culture
Corey Rosen, NCEO
What Is an Ownership Culture?
• A “company of businesspeople”
• People have a financial ownership stake in
the company through ESOPs, options, or
other forms of equity. A “sense of ownership”
is not enough!
• Information about financial, quality,
productivity, and other corporate goals is
widely shared
• Employees have meaningful and regular
opportunities to share their ideas and
information about how to make the company
better
• Core company values guide employee
behavior
What Is Your Corporate Story
• Different from a mission statement or
vision statement; it is the story you
would tell about your company to
describe it to other people.
• Is this a story employees will buy
into?
• Are they just bit players or integral
pieces? What role do they see
themselves playing in the story?
An Ownership Tale
• This is our company; everyone really does
have an ownership stake
• Because it is our company, we need you to
think and act like owners every day
• Because we expect you to think and act like
owners, we’ll give you the information and
the authority to make good decisions.
• Because we expect you to think and act like
owners, we will actually make you owners.
Creating a Sticky Message
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Simple, but not simplistic
Unexpected
Credible
Concrete
Emotional
Stories
From Messages That Stick, Chip and Dan Heath
OBM: You Want Me to Tell Them
What?
• Money is the most sensitive of
topics; people are reluctant to share
financial information about
themselves or their companies
• Owners and managers fear
information will leak to competitors
and suppliers
• Management doesn’t think
employees will understand anyway,
and, even if they do, what will they
do with this information?
OBM II: You Want Me to Learn What?
• It’s so boring! It’s so complicated! It’s
so irrelevant!
• I know they’re hiding something
anyway.
• They’re just trying to make use work
harder and accept less pay.
• What else?
OBM III: Actually, This is Kind of Fun
• Numbers can and should be broken
down in ways employees can
actually use, such as critical
numbers. Income statements and
balance sheets are useful
symbolically, but rarely have day-doday practical applications.
• Numbers create a game, and the
game is motivating and fun.
• If employees are involved in crafting
critical numbers, they come to own
them.
But Information Is Not Enough
• It’s not just that you want people to
think like owners. You want them to
act like owners.
• Having a stock plan and knowing
how it can pay off (because you now
understand the numbers) can be
motivating, but…
• There have to be specific, structured
opportunities to share ideas and
information
And Neither Is Telling People They Are “Your
Most Important Assets”
• Do any CEO’s not say this?
• Do any employees believe it? Not
according to a 2007study of 90,000
workers worldwide by Towers Perrin.
Only 10% said they were actually
treated as the company’s most
important assets. Just 21% said they
were “fully engaged” at work, while
38% were “wholly or partly
disengaged.”
• So, surprise, you actually have to a)
mean it and b) do it.
Open Doors and Other Fairly Useless Things
to Do
• Allowing participation is just not
enough.
• When do I do it?
• What if I don’t feel confident to
express my idea?
• What if the boss doesn’t give me any
feedback or puts me off?
• What if someone else takes credit?
• What if I get credit?
Participation Needs Structure
• It creates a safe place to share ideas
and information
• It creates an expectation that people
will share ideas and information
• It provides something concrete to
tweak and change
• Attitudes tend to follow behaviors,
which tend to follow structures
• So how do we get to these new,
participative structures?
It Ain’t Easy
• Hierarchies are
well entrenched
• They work well
when the key is
efficiency and
repetition
• They give
people a clear
career path
• They provide a
lot of certainty
But Hierarchies Don’t Work So Well
Today
• Information flow too critical
• Innovation requires more
flexibility and freedom
• Decisions need to be made
more quickly
• It’s ideas that matter
The Resisters: The CEO
• Fears giving up control
• Used to telling people what to do
• Been doing it this way for a long
time, and it’s worked so far
• Absent the CEO’s active
involvement, progress will be very
difficult
The Resisters: Middle Management
• They are required to change the
most, and possibly give up the most
• Their situation is the most
ambiguous in the new corporate
order
• They didn’t get to where they are by
being coaches and facilitators; they
got there by being good at their job
and being decisive
The Resisters: Non-Management Employees
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Some don’t want new responsibilities
Some resist ambiguity
Some are cynical about any changes
Some just don’t like change
Teams Are Great, But…
• Many efforts to get employee teams
more involved don’t work well at first
– or ever
• Teams may tackle problems that they
don’t have adequate information or
skills to handle
• Team authority may be too limited or
uncertain
You Never Get “There”
• As people develop new skills, they
will want to do more and can do
more
• The same old same old will get
routine
• Management will expect more
• So “there” keeps moving
Sorry, Sense of Ownership Is Not Enough
Either
• A sense of ownership without real
ownership is not very satisfying….
Ways to Provide Real Ownership
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ESOPs
Stock options
Synthetic equity
Restricted stock
ESOPs
• Qualified employee benefit plan, similar to
401(k) and profit sharing, so plan benefits
must be equitably allocated
• Company funds plan through tax-deductible
employer contributions; ESOP can also
borrow money the company repays in pretax dollars
• Certain sellers can defer gain on the sales of
stock to an ESOP
• 100% S ESOPs pay no federal income tax
• Often used to create a market in closely held
companies.
Options
• Right to buy stock at a price
determined today for some number
of years into the future
• Most options are taxed as income
when exercised, but some options
can qualify for capital gains
treatment at sale
• Most often used for key people or
more broadly in pre-sale or pre-IPO
companies
Synthetic equity
• Phantom stock is a bonus paid out
after a right vest that is based on a
hypothetical number of shares
• Stock appreciation rights are a bonus
paid out based on the increase in the
value of a hypothetical number of
shares
• Both are taxed as bonuses
Restricted stock
• Generally, a grant of stock that can
only be exercised subject to
restrictions lapsing, most commonly
meeting certain service or
performance goals
• Employee can choose to pay tax at
grant, then pay capital gains at
ultimate sale (but risk forfeiting
shares and taxes if they never vest)
or pay ordinary income tax when
restrictions lapse.
Questions ?
Corey Rosen
National Center for Employee Ownership
1736 Franklin Street, 8th Floor
Oakland, CA 94612
510-208-1300
[email protected]