Tag Archives: Buy-in

How Do You Strengthen Internal Incentives and Ownership? Four Points

Situation: A technology company has established a leadership position in their niche. Nevertheless, they struggle with individual performance and buy-in to company performance. The CEO asks whether increasing ownership through stock incentives in a non-public company is an effective incentive for employees. How do you strengthen internal incentives and ownership?

Advice from the CEOs:

  • In the past, employees voiced a strong predilection for share ownership as recompense for the personal risk and sweat that they have put into the company.
    • It may be advisable to revisit this, particularly given the increased risk that comes with share ownership as a result of regulatory changes of the last 10 years.
    • As a substitute for share ownership, they may be open to some proxy that will provide them with value and the opportunity to have their opinions heard in the case of a buy-out.
  • Another company looked at this closely at the time of formation. They decided that proper recognition for contribution did not equal ownership. Ownership also entails personal liability and risk, which many don’t realize and, once they understand the implications of owners’ liability, don’t want. As an alternative they adopted a liberal profit-sharing structure that has met with employee enthusiasm.
  • Think about this discussion in terms of incentives:
    • Short Term – Annual-type incentives
      • Make sure that incentives align with desired behaviors so that individuals’ contributions contribute to business plan objectives and the next step for the company.
    • Long Term – consider the trade-offs
      • Share Ownership
        • Broadly distributed share ownership not only complicates future flexibility but may also complicate a buy-out or merger opportunity. Consider the implications of a situation where most shares are in the hands of past rather than current employees.
        • Strategic Partners wishing to invest may be reticent to work with a company with broadly distributed ownership.
      • ESOPs, while frequently referenced, tend to eat their children. They have several complications:
        • They are governed by ERISA, so you cannot discriminate. All must be able to participate.
        • Ownership is prescribed – with a maximum of 10% per employee. Will a future CEO candidate be happy with 10% when the admin assistant gets 3%? In this way ESOPs can impair succession and recruitment plans.
        • Annual valuations can be expensive.
      • Phantom or Synthetic Equity Programs
        • A company can tailor these to meet changing objectives.
        • Valuations are cheap and valuation metrics are easy to monitor.
  • To work through the options, sit and talk with the employees, and listen. Ask what concerns them. Don’t try to come up with a solution until their concerns are understood. There is an array of options available.

When Are You Dominant and When Do You Facilitate? Three Keys

Situation: For a CEO to lead effectively, she or he needs to be able use both dominant and facilitative modalities of leadership. James Church, in Navigating the Growth Curve, ties the use of each mode to the growth stage of the company. A CEO asks whether the use of each modality is purely a question of growth stage, or whether there are situational guidelines for the use of each modality. When are you dominant and when do you facilitate?

Advice from the CEOs:

  • The Dominant Mode is appropriate when there is an immediate situation with a clear desired outcome; whereas the Facilitative Mode is appropriate when fixing a broken system that produces issues, or to increase team communication and contribution. As examples:
    • The Dominant Mode is appropriate when there is an immediate issue to be resolved, with clear legal implications and a clear response based on established policy.
    • The Facilitative Mode is appropriate when you want to develop and institute policies and procedures to handle issues ahead of time, or to establish guidelines for action. In these cases you want both input from the team as well as buy-in to institute the resulting decisions.
  • Strategic Planning shifts from Dominant to Facilitative Mode as the organization grows and becomes more complex. Early on, strategy needs to come with a single, decisive voice. In larger companies strategy becomes a group exercise because there are many moving parts and teams.
  • Another way to think about this is that Dominant is appropriate when “the buck stops here,” and will shift from CEO to managers for specific decisions when you reach a stage where the managers are now dominant. Facilitative becomes appropriate when managers and employees – those below the level of company or division leader – need to make the decision instead of the leader.

What are Best Practices for Effective Delegation? Three Thoughts

Situation: The CEO of a small company finds that whether he gives broad direction to employees or very specific instruction he gets the same result: they don’t seem to understand what he wants. He feels that they don’t have a sense of buy-in or urgency. What are best practices for effective delegation to improve results?

Advice from the CEOs:

  • You recently fired an employee for inconsistent performance but didn’t tell your staff. When you return to the office this afternoon, get the employees together and tell why the individual was fired. Let them know that this is part of a broader pattern that you see within the company and that if you see other cases of individuals not following through on their assigned responsibilities you will have to take additional action. Unless your employees understand that nonperformance has consequences, there will be no change.
  • In your operations, set subassembly goals and intermediate milestones coupled. Create and post a set of charts in the operations room so that employees have a regular visual reminder of how they are doing. Bring these charts to employee meetings and discuss how the company is doing. If deadlines aren’t being met, ask for input on how to improve performance. Celebrate successes with recognition for individuals or groups who demonstrate the ability to meet objectives.
  • Hire an operations manager with experience working with teams the size of yours. You want an individual who excels at motivating and getting results from people, and who has supervisory versus managerial experience. Think platoon leader – a person who excels at effectively running small teams.

Key Words: Delegation, Direction, Buy-in, Urgency, Performance, Consistent, Consequences, Vision, Priorities, Goals, Milestones, Chart, Review, Employee Input, Improvement, Celebration, Manager, Motivation, Results