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Value Creation Blog

Should I Give My People Stock In My Company? - Exit Planning

Posted by Josh Patrick

Giving stock in your company?One of the questions I’m asked on a regular basis is whether our Clients should give stock to their key people.  Many private business owners believe that if they give their managers stock, those key managers will take a more active “ownership” interest in the company.

For the most part I’ve found that this belief is false.  Managers who are given stock don’t often take an ownership interest.  In my experience whether a manager owns stock or not has little to do with how they act towards the company.

If a manager is pre-disposed to act like an owner, they will do so whether they own stock or not.  My observation has shown me that manager’s behavior towards the company is not based on whether they own stock or not.

Instead, I find that manager’s actions are based more on their worldview about work and what sort of environment the owner has set up in their company.  For a manager to act like an owner, they must be treated like an owner.  And, this has nothing to do with stock ownership.

The manager must be allowed to make decisions and make mistakes.  The managers must also be allowed to control their work environment and how they go about doing their job.  Owners who allow managers and employees to control their work tend to have more involved employees than owners who like to control what, when and how work is done.

I’m a big fan of having performance guidelines established and then have managers and employees set their own strategies for how they will achieve goals that are established and agreed upon. Maintaining personal control is a better motivator in most cases than stock ownership. 

If you feel you must give stock to your key people I would encourage you to think about using phantom stock or stock appreciation rights.  Neither of these comes with the drawbacks of giving your key people actual stock.

When you give stock to key people I think you should really want them as your partner.  And, you should treat them like a partner because legally that’s what they are.

In some instance actual stock ownership is a good thing.  Most of the time there are better ways to improve motivation and achieve high performance from your key people.

I’m always interested in what your thoughts are about motivating your key people.  Please send me an email at Jpatrick@stage2planning.com to let me know what you think.

Josh Patrick

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Topics: business exit planning, deferred compensation, succession planning

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