Have you ever considered sharing equity with key employees? Making employees owners can help you create alignment and act as a hook to keep people around, but it may not be necessary or even desirable, as Nick Leighton found out the hard way.
Leighton started a marketing agency called NettResults with the idea of helping technology companies access consumers in the Middle East. Based in Dubai, Leighton had built NettResults to around $2 million in revenue when he decided to roll out an employee ownership plan.
Leighton worked painstakingly on thinking through the program. He decided to award shares based on seniority and each employee’s contribution to the success of NettResults. He even proposed employees add “owner” to their title (e.g., Account Manager & Owner or Creative Director & Owner).
He launched the program with great fanfare, only to have his team react with indifference. “It was crickets,” Leighton told me when I interviewed him on Built to Sell Radio.
What Leighton later came to realize was that his employees didn’t value equity in a small, privately held business. He went on to understand his staff placed a much higher value on having flexibility to their working hours and being able to work with clients that valued them. NettResults employees also valued the chance to work with the United Nations World Food Program, a pro bono client Leighton used as a charitable cause for his entire team to contribute time to.
For Leighton, understanding what motivated his employees individually was a much bigger retention driver than a one-size-fits-all stock ownership scheme.
When to Use Equity
If you run a fast-growth company in an industry with a hot M&A market, it may make sense to give your staff stock options because the prospects of that equity becoming valuable are reasonably good. However, if you’re in a service industry where the outlook of selling is less sure, stock options may be seen as an empty gift. Other less dilutive perks may have a bigger impact on your employees’ overall happiness.
