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2.5.99  
Share and Share Alike: A Tip from Mom on Employee Ownership
Excerpts from Wear Clean Underwear

Babies don't know how to share. In infancy, even if we had a twin, we didn't think about how to divide up the milk. As toddlers, we wanted everything. No matter what it was, if it caught our eye, we wanted it.

In bringing us up and helping us become healthy adults, Mom knew that one of her biggest jobs was teaching us to share -- with siblings, classmates, other kids. Mom wanted us to share not only because it was "good manners" but because being willing to share made us better able to get along with others and better able to survive in the world.

Companies, too, are learning they can't get along very well unless they share. Increasingly, businesses share financial rewards throughout the company, with all employees. And I've seen a company that shares not only the monetary gains but also the management, decision making, responsibility -- the ownership -- of the company with everyone, even the most unlikely employee group of all.

I help people develop business plans. That's my specialty as a management consultant. The majority of my clients come to me because they're seeking financing and they need a written business plan they can give to funding sources -- investors, banks, venture capitalists -- to explain their business in depth. Many of my clients are entrepreneurs with ideas for new businesses.

SURVIVAL. Here in Silicon Valley, finding and funding new companies is a huge industry. Venture capitalists actively seek, court, wine and dine, and compete for promising entrepreneurs. They know that without those entrepreneurs and new ideas, there would be no way for them to make money. Investors can't survive without good investments.

So picture the following imaginary scenario:

Two entrepreneurs, Seth Slater and Kayley Connor, have been working on an idea for a new business, MicroWidget TechCom, for a couple of years. Seth and Kayley have done their research. They've identified their markets. They've created a prototype of their product. They've secured key strategic partnerships. They've lined up some initial customers who are eager to purchase MicroWidgets just as soon as production starts.

They present their business plan to one of Silicon Valley's most respected venture capital firms, Vulture Ventures. Vulture loves the plan and decides to fund the company. MicroWidgets are the hot new thing. (Kleiner, Perkins has already invested in a company in this space, and MicroWidget got all the buzz at recent industry conferences.) Vulture offers Seth and Kayley the standard arrangement: Vulture will provide all the start-up money the company needs and, in return, will own 100 percent of MicroWidget TechCom.

What do our two intrepid entrepreneurs receive? Good salaries, excellent benefits, nice job titles, and a possible bonus if the company does well. What don't they get? A piece of the ownership pie, a seat on the board of directors, input into the decisions of the company, equity.

Here's why this scenario has to be imaginary: If it were real, Silicon Valley would dry up overnight. People don't want to work that hard, sacrifice that much, give up their best ideas, just for others to own it all.

Yet, every day, all across America, companies act out a version of this scenario with their own employees. Companies ask employees to come to work and give up their best ideas, their best efforts, their energy and commitment but don't give employees, in return, a share in the ownership, both financially and emotionally, of those ideas or that company.

If you want to unleash the power of ideas and creativity within an organization, you've got to allow people ownership of those ideas and the fruits of those ideas. The way you do this is by sharing.

WHEN DO THEY VEST? When people speak about business excesses today, the thing they usually point to first is the ever-increasing disparity in pay between those at the top of the corporate ladder and those at the bottom.

Just take a look at the salaries of chief executive officers compared to those of average workers. In 1965, CEOs were paid 44 times the average factory workers' pay. By 1997, that figure had ballooned to a CEO receiving 209 times what an average factory worker earned! Other figures also support the perception that some people are taking more than their fair share from the cookie jar: In 1996, executive pay (including stock options) increased 20 percent versus a 3 percent gain in workers' wages -- while average business profits were up 11 percent.

Would this make Mom happy? Does this seem like a fair way to share? One of the things that contributes to these wide disparities in income is the grant of stock options to key corporate executives. The use of stock options has received a lot of bad press, primarily due to excessive options granted to those at the very top of a company. But the theory behind stock options is sound: Those who are critical to the success of a company should have a stake in its success.

But just who is critical to a company's success? Just the CEO? The top executives? The key managers? How about administrative support? How about the janitor?

In Silicon Valley, everybody talks about their stock options. I mean everybody. Terrific administrative assistants or receptionists apply only for jobs that offer stock options. It's nice, of course, to make a good salary, but the real potential, they know, is ownership. They're willing to work extra hard to help a company succeed, but they want to participate in that success. Silicon Valley's business culture is based on people knowing that if their company succeeds, they succeed. Silicon Valley companies were among the first in the nation to offer stock options to a broad range of key employees.

But the trend toward employee ownership isn't limited to Silicon Valley. Throughout the country, companies have adopted stock purchase plans as a way of increasing employee dedication. The next time you buy a latte at Starbucks, for instance, keep in mind that the barrista (the guy working that espresso machine) is almost certainly a stock owner. Through Starbuck's Bean Stock plan, all employees who work at least 20 hours a week are entitled to stock options, in addition to health insurance and other benefits. Owning a piece of the company makes it far more motivating to get your order right the first time.

Rhonda Abrams lives in Los Altos Hills, Calif., and writes the nation's most widely read small-business column, distributed by Gannett News Service. She is also the author of the bestselling book, The Successful Business Plan: Secrets & Strategies. Abrams is also an entrepreneur. In 1986, she founded a management-consulting practice that has clients ranging from one-person start-ups to Fortune 500 companies. In 1995, she was an Internet pioneer, founding a Web-content company, which she later sold.

Reprinted from Wear Clean Underwear: Business Wisdom from Mom
by Rhonda Abrams.
Copyright 1999 by Rhonda Abrams.
Published by arrangement with Villard Books.
Available at the McGraw-Hill book store and from Random House by calling 800 793-2665.
All rights reserved.

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