Wind in Your Sail – Aligning Business and Personal Incentive Through Ownership

Incentive Powers Employee-Owned Companies to Perform Better

Many professionals feel confined by a lack of ownership opportunity in their company. A lack of ownership opportunity severely limits an individuals long-term ability to prosper.

Does your performance package allow you to fully meet the financial needs of your family? Is stock ownership open to you? If not, how does this effect your performance?

We Each Are Created to Succeed

We each are built with a desire to succeed. It is how we are created. It is natural for us to want to provide well for ourselves and our families. In addition to that, God Himself helps us to succeed. The Bible in Philippians 2 says, “For it is God who works in you to will and to act in order to fulfill His good purpose”.

Does your company ownership and control structure tap into your desire to succeed or ignore it?

3 Business Structures that Encourage Wealth Creation

Below are three business governance structures that incentivize personal wealth creation. They give their staff access to earn significant wealth through ownership. As a result, the governance structures also create a performance culture that results in elevated company profits.

The governance of your organization matters. Here are three governance structures that maximize personal and company wealth adapted from Margaret M Blair’s, Ownership and Control – Rethinking Corporate Governance for the Twenty-First Century.

1. Entrepreneurial Start Up Companies
Start ups are closely held by the founder, bank, and venture capital firm. Each have capital invested. Each share in the risk of failure and share in benefits of success.

2. Franchise Systems
Franchise systems give managers a great deal of control over daily operations and assigns them a portion of the risk and rewards associated with ownership.

3. Partnerships

Professional partnerships are most common type of governance in service industry. Many engineering, law, accounting, and architecture firms were traditionally partnerships. In partnerships, the right to control the company and share in the risks and rewards are assigned to the partners.

Why They Produce Greater Wealth

There is a common thread of each governance structure listed above, ownership. I have been apart of two large public corporations, one privately held single owner corporation, and an employee-owned corporation. In my limited experience the employee-owned corporation had twice the profit margin and twice the longevity of the other governance structures.

Linking ownership and management produces more wealth than keeping each separate. Here is why:

1. Owners are Wiser Than Hirelings. There is no better steward of your wallet than you. It’s obvious why. You care more for your own resources than others who do not share in the risk and reward of your decisions. Why do we fail to recognize this in most businesses? Managers of staff resources and company capital must be owners. If not, the company has set up a system where the managers do not feel the financial pain of loss or the benefits of success. It numbs managers to financial reality of the business. This is a “hireling” manager situation. Unfortunately, it is the most prevalent manager type in US in architect and engineering corporations.

2. Human Capital is Rewarded
These governance structures allow ownership by company staff. In the digital age customized, highly creative and user-centered products are selected in the marketplace. The creators of these products are creating wealth for their company, clients, and society as a whole. Recognizing the importance of human capital in wealth creation these structures reward human capital with ownership. A positive-reinforcing loop is created and the creative staff will be retained by the company to produce more highly specific, creative solutions.

3. Pay is Scaled With Performance

These governance structures pay salary, bonuses, and stock proportionally to company and personal performance. A substantial portion of each of these is reduced if the business does not profit and is increased if the business does profit. The linking of pay with performance is greater than traditional corporate structures that are publicly held. The result is a company that has incentive to most efficiently guard resources from loss and to produce profit from projects.

How is your productivity effected by direct ownership? What is the most rewarding governance structure in which you have worked?

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