Creating an Ownership Culture Corey Rosen, NCEO

1. Creating an Ownership Culture Corey Rosen, NCEO

2. What Is an Ownership Culture? • A “company of businesspeople” • People have a financial ownership stake in the company through ESOPs, options, or other forms of equity. A “sense of ownership” is not enough! • Information about financial, quality, productivity, and other corporate goals is widely shared • Employees have meaningful and regular opportunities to share their ideas and information about how to make the company better • Core company values guide employee behavior

3. What Is Your Corporate Story • Different from a mission statement or vision statement; it is the story you would tell about your company to describe it to other people. • Is this a story employees will buy into? • Are they just bit players or integral pieces? What role do they see themselves playing in the story?

4. An Ownership Tale • This is our company; everyone really does have an ownership stake • Because it is our company, we need you to think and act like owners every day • Because we expect you to think and act like owners, we’ll give you the information and the authority to make good decisions. • Because we expect you to think and act like owners, we will actually make you owners.

5. Creating a Sticky Message • Simple, but not simplistic • Unexpected • Credible • Concrete • Emotional • Stories From Messages That Stick, Chip and Dan Heath

6. OBM: You Want Me to Tell Them What? • Money is the most sensitive of topics; people are reluctant to share financial information about themselves or their companies • Owners and managers fear information will leak to competitors and suppliers • Management doesn’t think employees will understand anyway, and, even if they do, what will they do with this information?

7. OBM II: You Want Me to Learn What? • It’s so boring! It’s so complicated! It’s so irrelevant! • I know they’re hiding something anyway. • They’re just trying to make use work harder and accept less pay. • What else?

8. OBM III: Actually, This is Kind of Fun • Numbers can and should be broken down in ways employees can actually use, such as critical numbers. Income statements and balance sheets are useful symbolically, but rarely have day-do-day practical applications. • Numbers create a game, and the game is motivating and fun. • If employees are involved in crafting critical numbers, they come to own them.

9. But Information Is Not Enough • It’s not just that you want people to think like owners. You want them to act like owners. • Having a stock plan and knowing how it can pay off (because you now understand the numbers) can be motivating, but… • There have to be specific, structured opportunities to share ideas and information

10. And Neither Is Telling People They Are “Your Most Important Assets” • Do any CEO’s not say this? • Do any employees believe it? Not according to a 2007study of 90,000 workers worldwide by Towers Perrin. Only 10% said they were actually treated as the company’s most important assets. Just 21% said they were “fully engaged” at work, while 38% were “wholly or partly disengaged.” • So, surprise, you actually have to a) mean it and b) do it.

11. Open Doors and Other Fairly Useless Things to Do • Allowing participation is just not enough. • When do I do it? • What if I don’t feel confident to express my idea? • What if the boss doesn’t give me any feedback or puts me off? • What if someone else takes credit? • What if I get credit?

12. Participation Needs Structure • It creates a safe place to share ideas and information • It creates an expectation that people will share ideas and information • It provides something concrete to tweak and change • Attitudes tend to follow behaviors, which tend to follow structures • So how do we get to these new, participative structures?

13. It Ain’t Easy • Hierarchies are well entrenched • They work well when the key is efficiency and repetition • They give people a clear career path • They provide a lot of certainty

14. But Hierarchies Don’t Work So Well Today • Information flow too critical • Innovation requires more flexibility and freedom • Decisions need to be made more quickly • It’s ideas that matter

15. The Resisters: The CEO • Fears giving up control • Used to telling people what to do • Been doing it this way for a long time, and it’s worked so far • Absent the CEO’s active involvement, progress will be very difficult

16. The Resisters: Middle Management • They are required to change the most, and possibly give up the most • Their situation is the most ambiguous in the new corporate order • They didn’t get to where they are by being coaches and facilitators; they got there by being good at their job and being decisive

17. The Resisters: Non-Management Employees • Some don’t want new responsibilities • Some resist ambiguity • Some are cynical about any changes • Some just don’t like change

18. Teams Are Great, But… • Many efforts to get employee teams more involved don’t work well at first – or ever • Teams may tackle problems that they don’t have adequate information or skills to handle • Team authority may be too limited or uncertain

19. You Never Get “There” • As people develop new skills, they will want to do more and can do more • The same old same old will get routine • Management will expect more • So “there” keeps moving

20. Sorry, Sense of Ownership Is Not Enough Either • A sense of ownership without real ownership is not very satisfying….

21. Ways to Provide Real Ownership • ESOPs • Stock options • Synthetic equity • Restricted stock

22. ESOPs • Qualified employee benefit plan, similar to 401(k) and profit sharing, so plan benefits must be equitably allocated • Company funds plan through tax-deductible employer contributions; ESOP can also borrow money the company repays in pre-tax dollars • Certain sellers can defer gain on the sales of stock to an ESOP • 100% S ESOPs pay no federal income tax • Often used to create a market in closely held companies.

23. Options • Right to buy stock at a price determined today for some number of years into the future • Most options are taxed as income when exercised, but some options can qualify for capital gains treatment at sale • Most often used for key people or more broadly in pre-sale or pre-IPO companies

24. Synthetic equity • Phantom stock is a bonus paid out after a right vest that is based on a hypothetical number of shares • Stock appreciation rights are a bonus paid out based on the increase in the value of a hypothetical number of shares • Both are taxed as bonuses

25. Restricted stock • Generally, a grant of stock that can only be exercised subject to restrictions lapsing, most commonly meeting certain service or performance goals • Employee can choose to pay tax at grant, then pay capital gains at ultimate sale (but risk forfeiting shares and taxes if they never vest) or pay ordinary income tax when restrictions lapse.

26. Questions ? Corey Rosen National Center for Employee Ownership 1736 Franklin Street, 8th Floor Oakland, CA 94612 510-208-1300 crosen@nceo.org