If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #13 post I discussed how your ETA Risk Mitigation — if done properly — will allow you to avoid big and costly mistakes in your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). I know that you know the saying, “No risk, no reward!” I also know that strategic risks take into account lead to your motivation. Some of us are motivated by fame, others by money, etc. In today’s 30 Days to ETA post, we’re going to explore what drives ETA Engagement, or the motivations associated with owning/running a business with a team… Enjoy!
I spent a few years in my late-twenties working for a large Change Management consulting firm. One of the change initiatives I worked on was with a Fortune 500 organization focused on improving their customer satisfaction. To say that their customer satisfaction to that time was bad would be an understatement! JD Power, the true voice of customer data coordination company, reported that this manufacturer was one of the worst not only in their industry, but in business. I was eager to get on this project as I had been a customer of this organization several years back and had the experience of a lifetime, and not the good kind!
As a college student I put my way through school by working and going to night school. I’m not saying this with shame or to brag, just to say that every dollar I made went to my college education. I was able to graduate both undergrad and grad studies with zero debt. I look back on those days and wouldn’t change a thing, except my first big purchase after graduate school left me feeling like I gave away the farm. I overpaid significantly for a product, and on top of it felt like I’d gotten taken advantage of. Life has a funny way of teaching you lessons sometimes. This was one of them where I wasn’t laughing. The company, you’ve probably guessed by now was the same client years later I’d be assigned to in an engagement to raise their customer satisfaction. I was dissatisfied with their product/service and even in this engagement that was four years later, still had a bad taste in my mouth.
As part of the consulting engagement launch, we conducted assessments of customers — both those external the organization as well as those internal. Here’s what the results concluded:
- Nearly 80% of external customers hated their experience with the organization
- Nearly 90% of the internal customers hated working for the organization
It’s awfully difficult to have great external customer satisfaction if you have bad internal customer satisfaction. The saying, “Happy employees equal happy customers” rang true loud and clear. The Entrepreneurship Through Acquisition journey is not a road typically traveled alone. As part of your Acquisition Entrepreneur skills you will have to lead others to get to where you want to go. In order to get to that goal destination in the most efficient manner (time and approach), you will need to have ETA Engagement in place, meaning your team will have to be 100% engaged in what you are doing. With everyone pushing/pulling in the same direction, traction can be achieved.
Happy Customers can’t occur if you have Unhappy Employees!Sam Palazzolo, Managing Director @ Tip of the Spear Ventures
Building ETA Engagement
As you approach the acquisition of your future business, you will be faced with questions from your team members about their role in your company’s future. Regardless of how effective you believe you are in sharing your ETA Mission, Vision, & Values (See Day #9’s post by CLICKING HERE), this can cause major concerns. Team members will worry about their future job security. On the other hand, some team members will worry about losing seniority or respect. Emotions run amuck whenever we business owners where they are at and where they are going, and ETA Engagement success/failure lies in the balance.
Entrepreneurship Through Acquisition individuals I work with often pull-up and ask, “How can we build a team dedicated to helping us reach our goals in the business?” If you have a stable bench of team players who help you realize profit in your business, more than likely, you’ll want to be philanthropic. You’ll want to show benevolence towards those individuals who are in the dirt and the grime, pulling towards the goal with you.
ETA Engagement Strategy Goals
Before you “give away the farm,” so to speak like I did in the opening of this post, let’s look at strategies you can implement to incentivize employees and still have your desired pay-out while running your business. Keep these concepts in the back of your mind while you decide what incentives to offer:
- Give all team members a way to piggy-back on your company’s financial success
- Have contingencies in place to ensure the commitment of your executive team
- Reward the team members for actions you want to encourage
Long-term ETA Engagement Incentive Plans
So what kind of rewards can you offer employees? If you don’t plan to give away stock shares, but you want to be benevolent and fair what exactly can you do to encourage ETA Engagement? One way to incentivize team members over the long-term course of their employment is to offer them a stock-option. While I could spend multiple blog posts on the topic of stock-options, my goal of this article is just to introduce you to the idea at its highest level.
I’ll tell you, too, that if you’re going to entertain the idea of a stock-option plan or stock options for your company, you’ll want to have a competent attorney and a power-house accountant on your professional advisory team. There are plenty of red-tape barriers and legal risks surrounding stock-options, so you’re going to need a good consulting team (See Day #6 – The ETA Team by CLICKING HERE).
Create A Stock-Option Employee Incentive Plan
So at its simplest, a stock-option plan is when you provide your employees with an option to buy stock in your company. Notice, I didn’t say that you’re giving your employees stock in your company. No, you’re providing them with the option to purchase stock in the company. At the same time, you’re controlling most aspects of the stocks in this stock-option. You are:
- Setting the number of shares or units employees can purchase
- Fixing a purchase price for each available share
- Creating a vesting timeline
If you can get an employee to invest the money he earns into the very company for which he works, then you have a dedicated employee. You have someone who sees value in your business and puts his dollars to work within it.
Phantom Stock Options
Now the stock-option method eventually has you give up stock in your company. But what happens if you don’t want to give up stock? There’s another way to offer long-term employee incentives. Some people call this incentive strategy “phantom stock” or stock appreciation rights. Basically, in this method, you’re providing money to the employee without ceding ownership or control.
Within a phantom stock-option, you can create a bonus structure for key employees that pays them based on a “phantom,” or figurative ownership, share in your company. So while you own 100% of the stock in your corporation (member units is an LLC), you can pay your employees an ownership percentage when your company does well. That way, your employees don’t get all up in your business from an equity perspective, but they stay motivated and dedicated to your end goals by receiving a financial performance amount.
Short-term ETA Engagement Incentive Plans
Not all employees see a long-term reward as a reason to stay at a place of employment. Therefore, business owners should probably offer incentives along the way to encourage ETA Engagement. Short-term employee incentive plans can keep your team members happy and motivated so they don’t look for positions at your competing companies. You don’t want to train your employees to work for or to become your competition, but know that sometimes this happens if you don’t establish the right promote from within strategy. Positive reinforcement and instant gratification can work like a carrot held out on a stick does for a donkey. Short-term employee incentives can also foster team member harmony and cohesion.
The following approaches will motivate employees for short-term ETA Engagement:
- Recognition – If an employee does a good job, reward him openly with verbal praise. A simple “Thank you” or “Great job” can make most anyone feel appreciated, wanted, and needed.
- Fringe benefits – Healthcare benefits, 401K matches, and the like can set your company above your competitor’s in the eyes of employees.
- Paid time off – The opportunity for earned and compensated time-off adds value to your employee workplace.
- Annual bonuses – Merited or unmerited, a Holiday bonus or a work anniversary bonus can add to employee happiness and commitment to your company.
- Production based rewards – Employees can become extremely motivated to work hard if they know they can earn trips to desirable locations, monetary bonuses, redeemable merchant gift cards, or many other types of gifts.
- Peace and happiness – Incentives don’t always come in time, gifts, or money. Simply creating a respectful and happy work environment can create employee loyalty for years to come.
Whichever way you decide to incentivize employees for ETA Engagement, make sure you have a good lawyer, an amazing accountant guide you, and a Human Resources professional. You’ll need help wading through the rights, warrants, risks, and taxes that come with stock ownership, stock options, fringe benefits, paid time off, bonuses, and gifts. Let me give you a word of caution: Don’t go to your next team meeting and mention to your employees that you’re considering ETA Engagement incentives until you’ve talked to your professional team. You shouldn’t blindly offer something your ETA Team may ultimately find too risky. Additionally, you don’t want to offer your employees incentive programs without educating them about the guidelines and requirements involved.