Where employee ownership falls short, Open Work can help fill the gap
How EO and OW combined together can align everyone from the frontline and the mid-level up to the C-suite
Employee ownership (EO) inspired a lot of my thinking around Open Work.
Yet, the unfortunate reality is that EO has a ceiling at which it has maximum impact that is much lower than what we might hope in order to spread the gains of capitalism more broadly.
Offering an employee a piece of the pie is only attractive if they either will be awarded more pieces (more shares) or that their pie itself will grow the size of the pieces that have (higher valuations). If you offer it to too many employees, the pieces are too small to be a real incentive, so you end up dilluting the business for no real benefit. If you offer it to too few employees, you end up creating different classes of ownership amongst employees which goes against the culture that employee ownership is trying to foster. As a result, most companies that offer equity to their employees have vesting cliffs over multiple years to make sure that ownership is accessible to anyone, but is only awarded to help retain their most loyal, highest performing employees.
A big argument for employee ownership is that it helps with retention, but it turns out, having everyone stay at the company for the long haul isn’t actually in the best interest of the business. Employees of public companies have a lot more options in how they are awarded and sell their shares, but private companies with ESOPs generally have a pie that is smaller and not growing as quickly, and whenver an employee wants to sell their shares, the company itself is usually the one that needs to have the cash on hand to buy them back at a premium. In short, ESOP companies can become victims of their own success.
“If you’re in the retail business, you can’t afford for everybody to vest. You’ve got too many employees. Everybody talks about ‘Oh, we want zero turnover.’ If you’re an ESOP, you don’t want zero turnover. You can’t afford zero turnover.”
- Dion Houchins, CEO & Chairman of Houchens Industries
Employee ownership works really well in attracting and retaining people at the mid-level and up, but it’s not a feasible solution for the frontline. How does a company align incentives with their rank and file when they don’t any more cash to give them in wages or benefits, and they don’t have any more equity to offer them?
Open Work could be the answer.
By allowing them to leverage their own hard work in pursuit of a greater opportunity elsewhere, we might find that employees are willing to put as much into their current jobs as if you offered them more in cash or equity compensation.
It’s not reasonable to expect every company to be all things for every class of employee for their entire careers, but with Open Work, no single employer would have to be. Open Work would make it possible for us to identify excess talent in one organization and match it with a new one where its potential can be maximized by the employee and the employer.
Employee ownership is still a big part of that, and we’re nowhere the peak of the positive impact it can have. However, if and when a company or city reaches that limit, EO and OW together can help align everyone from the frontline and the mid-level up to the C-suite.
Please reach out if you’re interested in exploring these ideas with me.