Employee ownership can be a powerful tool to help any business, large or small, increase productivity, foster innovation, reduce employee turnover, and remain profitable.
But simply providing employees the opportunity to be owners is not enough to realize those goals. It is important to build a strong ownership culture, and several important factors need consideration:
First, management must buy into the idea of employee ownership and commit to it long-term. This requires a significant mind-shift for some managers and they must develop a sense of trust that once employees become owners, they will begin to engage differently in the workplace if given the right information and opportunities.
Second, employee ownership should be broad-based. Including only a few key employees creates an atmosphere of haves and have-nots that may not sit well with those who have been excluded.
There can certainly be eligibility benchmarks or milestones for share purchase eligibility, and it is common to impose vesting rules on stock once it is purchased, but if employee ownership is not as broad-based as possible, it will be much less likely to deliver the engagement necessary to achieve the employee ownership objectives.
Third, trust must be shown in concrete steps and include all employee owners. This inclusion can cover a broad range of business activities, such as encouraging ideas for improving productivity, communicating the company's vision and goals, and sharing company financials.
These steps, especially the last one, are often difficult for management to initiate because they seem peripheral or irrelevant to many employee-specific duties, or because of fears that employees may misinterpret sensitive information. But these activities are crucial; it takes more than share ownership for employee owners to feel they have skin in the game.
Once employee owners learn, for instance, how cash flows through the company and what factors affect the bottom line, most will gain a different perspective on how their personal actions relate to the company's success and, by extension, the value of their ownership stake.
For situations where management is reluctant to broadly share detailed financial information because of the risk of misinterpretation from employees, a gradual, step-wise approach is fine as long as the rationale for its rollout is clearly explained.
This can begin with a business literacy program that introduces topics like cash flow and understanding balance sheets and profit and loss statements, all using fictitious numbers.
From there, the program can move to providing, with proper context, real financial data as percentages (e.g. Division 1 accounts for 65 percent of gross revenue, but also 80 percent of write-offs, etc.).
And finally, after management is comfortable that employees are well versed with the required financial concepts, the full financial picture with actual numbers can be shared. Keep in mind that even at a small company with relatively simple financials and a highly-educated workforce, this process may take longer than anticipated. Be patient.
Business literacy training should not be restricted to financial literacy. Employee owners need to start thinking like business owners, and to do so they need to understand company operations and also the bigger picture of where the company fits into its particular industry. Again, this takes time and it's a lot to do, but continued communication of company goals is important.
Fourth, management shouldn't be expected to do all the heavy lifting of building a strong ownership culture. Establishing a committee of employee owners to help solicit and develop ideas, and help management design and deliver the business literacy program is one way of achieving this objective.
These ESOP committees liaise with management and all employee owners to build and maintain a culture in which employees feel a strong sense of engagement with the company and contribute what they can to further its success.
A note of caution: be mindful that the committee should not negotiate with management about company policy, operations, or wages; the job of an ESOP committee is to foster an environment where employees do not perform their duties just "for the paycheque."
There are many ways to communicate ownership culture. Use a variety of tactics so that employee owners don't get "message fatigue." Monthly or quarterly "fast facts" about various aspects of employee ownership or business literacy are effective and infrequent enough that most employees won't feel overwhelmed.
Quarterly updates from management about company operations and performance are extremely valuable as well. Finally, annual face-to-face meetings or company summits allow employee owners to truly engage with each other and take part in planning for the company's success.
By working together, management and the ESOP committee can build a team with a common goal, in which each member believes the value of their investment in the company depends on how well the entire team works together.
Patrick O'Brien sits on the ESOP Association Canada board of directors and is one of approximately 50 employee owners at Metcalf Archaeological Consultants.
He has been a participant in the Metcalf's ESOP since its inception in 2002, has served multiple terms on the ESOP Communication Committee, and was one of two co-trustees of the ESOP from 2008 through 2016.
He also sits on Metcalf's ESOP Administration Committee, which is responsible for tracking participation in, and distributions from, the Plan.