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Giving Stock to Employees

More and more family businesses are considering sharing ownership with employees or key executives as the war for talent becomes ever more competitive. There are a couple of perspectives on the question.

 

Management Ownership
We need to offer stock to attract the caliber of people we need. Sharing ownership surely complicates our lives, and concerns some family members.
Doing so should help owners feel management shares their goals. How will this affect valuation, estate planning and privacy and, eventually, financing the repurchase?

 

The above debate is classic. But, it’s important to look closely at the incentives that are created by sharing ownership with management. Will management have a vested interest in selling the company or in taking it public? It would certainly often provide a great windfall for them.

And will the employees understand why stock prices are volatile? If they don’t, will their motivation for and confidence in the company remain constant even if the stock price valuation were to fall? Further, the stock market and traditional appraisal systems under value a family business’ true worth. Does that create a disappointment?

If you do offer shares it even more increases the need for shareholder education and communications with shareholders. What sharing ownership does most often is to point out the deficiencies in shareholder education and communications.

 

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