The Ownership Incentive

1. The Ownership Incentive Designed by Ownership Associates, Inc.

2. ESOPs change the “deal” Everyone has a “relationship” with the company they work for. We don’t think about the “relationship” much because it is so commonly understood. In the Soviet Union, employees often talked about their relationship with their company by saying: “We pretend to work and they pretend to pay us.” In the United States, that sort of relationship would lead to economic failure of the company, and the employee. (And it may have contributed to the failure of the Soviet Union.) Relationship

3. This program is about how the Employee Stock Ownership Plan (ESOP) changes the relationship between the employer and the employee. ESOPs change the “deal” Everyone has a relationship with the company they work for. We don’t think much about the relationship because it is so commonly understood. In the Soviet Union, employees often talked about their relationship with their company by saying: “We pretend to work and they pretend to pay us.” In the United States, that sort of relationship would lead to economic failure of the company, and the employee. (And it may have contributed to the failure of the Soviet Union.) Relationship

4. Standard Employment Deal The “Standard Employment Deal” is the one we are most familiar with. It is the reason we all went to work at our first job. We started working because we had something the company wanted – our time and effort, and the company had something we wanted – money. In exchange for our work (time and effort) the company paid us money. For many employees, this is the extent of the relationship between them and their employer. They show up, work for 8 hours, and the company pays them 8 hours wages. 8 hours work 8 hours pay

5. In both cases, the motive is to make money, but it leads to conflicting behavior. Standard Employment Deal The “Standard Employment Deal” sometimes encourages certain behavior that might not be most productive for the employee or the company. How can I make the most money? The employee wants to increase his/her pay as much as possible, while expending the least amount of energy. How can I make the most money? The employer wants to increase the productive output of the employees, while maintaining the lowest possible costs. 8 hours work 8 hours pay

6. ESOP Standard Employment Deal The ESOP adds another connection to the employee’s relationship with the company. In addition to receiving pay, the employee can make additional money through the long-term success of the company. How can I make the most money? The employee still wants to make “the most money.” But now, he/she can make money through ownership, too. Ownership rewards 8 hours work 8 hours pay

7. ESOP Standard Employment Deal The ESOP adds another connection to the employee’s relationship with the company. In addition to receiving pay, the employee can make additional money through the long-term success of the company. How can I make the most money? The employee still wants to make “the most money.” But now, he/she can make money through ownership, too. This additional interest in the company is what transforms an employee into an employee-owner. Ownership rewards 8 hours work 8 hours pay

8. Employee-Ownership “New” Deal But the company doesn’t just “give away” ownership to employees for the fun of it. In general, the company hopes and expects that the new employee-owners will contribute to company success. How can I make the most money? To help the company be more successful, the employee-owner needs to share his/her ideas and effort. Ideas and effort ESOP Ownership rewards 8 hours work 8 hours pay

9. Employee-Ownership “New” Deal So the new relationship between employee-owners and the company includes the old relationship, How can I make the most money? The employee contributes 8 hours of work and receives 8 hours of pay. ESOP 8 hours work 8 hours pay

10. Employee-Ownership “New” Deal So the new relationship between employee-owners and the company includes the old relationship, but builds upon it. How can I make the most money? Employee-owners share ideas and effort, and they receive the rewards of ownership. Ideas and effort ESOP Ownership rewards 8 hours work 8 hours pay

11. Means Motive & Opportunity How does the “New” Deal work? Now that we know what the new relationship is, and what it looks like, how does it work? To make the new relationship work, employees need three things, the: to make the company succeed

12. Individual Performance Department Performance Means Employees have the means to make the company more successful through their jobs. Employees have immediate control over how they individually perform in their jobs. Their personal performance also helps determine the success of their department, which influences the success of the company.

13. ESOP Stock Value Motive Employee-owners have the motive to make the company more successful because they share in the future success of the company. When the company is successful, the value of the company usually increases. So does the value of the company’s stock. As the company’s stock value increases, so does the value of the stock in the ESOP, meaning employees’ benefits increase in value, too. For more information about how employees benefit from company success, see Ownership Associates’ “Ownership Facts” curriculum.

14. Individual Performance Opportunity The opportunity to make the company successful happens in different ways at different levels. Employees have immediate control over how they individually perform in their jobs. The degree of control depends on a number of factors related to employee “autonomy.”

15. Individual Performance Department Performance Opportunity The opportunity to make the company successful happens in different ways at different levels. Employees can also influence their colleagues and team to improve procedures, processes, and teamwork. This influence is “cooperation” or “collaboration” that improves department performance.

16. Individual Performance Department Performance Opportunity The opportunity to make the company successful happens in different ways at different levels. At most companies, employee-owners have some form of “influence” over company policies as well. At some companies, it is simply a “suggestion box.” Other companies have more extensive procedures, and, in a few cases, even democratically elected company leaders. For more information on these levels of influence, see the Ownership Associates “Frontiers and Boundaries” curriculum.

17. Individual Performance Department Performance Opportunity The opportunity to make the company successful happens in different ways at different levels. At most companies, employee-owners have some form of “influence” over company policies as well. At some companies, it is simply a “suggestion box.” Other companies have more extensive procedures, and, in a few cases, even democratically elected company leaders. For more information on these levels of influence, see the Ownership Associates “Frontiers and Boundaries” curriculum.

18. Individual Performance Department Performance ESOP Stock Value Employees’ Return on Effort When employees take advantage of these opportunities, the company is likely to be more successful. In the end, the employees share in this success. Investors seek a good “Return on Investment.” These opportunities allow employees to earn a “Return on Effort.”

19. Individual Performance Department Performance ESOP Stock Value Summary Employee-owners have an additional interest in company success through the ESOP. Instead of just seeking increased wages, employees want to earn their “Return on Ownership.” Employees have the means The ESOP gives the motive Employees need to take advantage of their opportunity, and managers need to find ways to expand employees’ opportunities.

20. Conclusion In the end, many factors influence the success or failure of the company, and at work employees react to their peers, supervisors, managers, and many other issues. However … Personal life Managers Research has consistently shown that employee-owned companies with effective employee involvement are more successful than their competitors. Competitors Products Colleagues Customers Economy Supervisor