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Archive for April, 2011

Transforming employees into shareholders may not be a good idea

image by risayv

Logic would tell us that offering shares of your company to your employees (assuming they are offered at a good price) should clearly boost performance and allow the organization to achieve exceptional results. After all, wouldn’t most people work harder, reduce inefficiencies, increase their performance and chase sale leads once they become shareholders?

Turns out logic does not necessarily prevail in this situation and results may not be extra-ordinary.

Let me share with you our not-so-successful experience.

Our experience

I’ve already stated that Pyxis is an experimental laboratory and like many people, we understand that money by itself is not a good motivator. We also believe that sharing the wealth with the people who contribute toward achieving the business results is not only a good idea, but it is for us a morale obligation.

So at the end of 2007, the founder and then CEO agreed to sell 25% of his shares to the employees with the intend to increase performance and share the resulting wealth – in addition to using it as an employee retention strategy. At the time, almost 100% of the employees created a cooperative to own shares of their company. It is important to specify that our province offers important tax credits to employee-owned cooperative – which was an important driver in creating a cooperative.

The conclusion after more than 3 years of having employee-shareholders is that the intend and the objectives were right but the way to achieve them weren’t done right. Why is that? I asked myself.

Below are my conclusions but before we get into those, I believe it is important to understand the distinction between being an employee and being a shareholder.

What is an Employee?

An employee contributes labor and expertise to an endeavour. Employees perform the discrete activity of economic production. Of the three factors of production, employees usually provide the labor.

Specifically, an employee is any person hired by an employer to do a specific “job”. In most modern economies, the term employee refers to a specific defined relationship between an individual and a corporation, which differs from those of customer, or client. Wikipedia

What is a Shareholder?

A shareholder or stockholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself. Wikipedia

Clearly, there is a distinction between the role and contribution of an employee versus that of a shareholder. For one thing, transforming employees (with their behaviors and attitudes) into full-fledged active shareholders doesn’t happen over-night. To be honest, it still didn’t happen after over 3 years for almost 1/3 of the employees. Did we hire people who were not driven by results? Well, maybe for a couple of people but certainly not over 30% of the people. So why is it that results didn’t go through the roof?

After much analysis of the situation and heated debates, I believe there are a few reasons why transforming employees into shareholders didn’t give outstanding results:

  • Creating a cooperative has a non-capitalistic connotation: People who initiated the process of selling shares to the employees also wanted to implement a coop as a way to distribute wealth. Unless our implementation of a coop is very different than elsewhere in the world, many people understood a coop to be a non-profit driven initiative and as such, acted accordingly. Having a coop own 25% of the shares led to non-capitalistic behaviors and consequently slowed down growth and profitability.
  • Becoming an active shareholder isn’t the norm: Unless you have owned and operated a business in the past, the notion of becoming an active shareholder isn’t easily understood by most people. Many people – still to this day – ask themselves what it means to be a shareholder and how they should act differently. Transforming employees into shareholders is an educational process and unless you invest in training people what it means, the transformation will not give great results.
  • Lacking entry criteria brings performance downwards: Since everyone got access to shares without exception, there was no motivation to increase performance – why work harder than the next guy when the results are shared equally. On the other hand, when past performance is used to determine who gets the privilege to own shares, individual and collective performance is increased and as a consequence, the overall performance of the organization goes North.

Consequently, attempting to transform employees into shareholders overnight was a mistake in our case. If we had to do it again, I would still give employees the opportunity to own shares but it would be done according a different approach:

  • Owning shares is a privilege and would be based on past performance;
  • Allowing employees to own shares would be done in small increments, and annually (let’s say x% per year);
  • Potential shareholders would need to demonstrate their understanding of what it means to be an active shareholder and would need to agree to certain protocols;
  • The percentage of available shares would be results-based – the better the organizational results, the more shares would become available.

Based on this experience, I would gladly grant shares to employees who clearly understood the meaning and responsibilities of being an active shareholder and who have demonstrated (and are still demonstrating) outstanding performance. Otherwise, there is no wealth to share…

Don’t tell me you really want to increase your team’s performance – I won’t believe you

Image by Trucker TomI bet you $50 that even if I told you the way to boost your team’s performance without increasing your costs – you wouldn’t do it. The situation is actually worst than that! I’ll add another $50 that I even know what you will tell me once I tell you. You will say “We can’t do that in our organization“.

Ready to find out?

Stop assigning people to projects and let them pick the project they wish to work on – that’s it!

I can hear you - “We can’t do that in our organization” – there, I just saved $100.

Seriously, it is that simple. Think back to a project you worked on – were you assigned or did you select it yourself? Now do this exercise. Think back to something you enjoy, I mean you truly enjoy - were you assigned or did you pick it yourself?

Have you ever heard of Tom Sawyer withewashing the fence? As Mark Twain once said, “Work is something you are forced to do while leisure is something you choose to do”.

I don’t mean to pretend that work is a hobby but many organizations ignore people’s intrinsic motivation and personal drive when they (i.e. the managers) assign people to projects. No matter what the project is about, there will always be people interested in working on such a project. Ever heard of Crowdsourcing?

In most organizations, it may not be easy to let people select their own project, but it is feasible. Some organizational constraints may need to be modified, project assignment may need to be done differently, some resource planning may be required but all of this is feasible.

As one of the participant highlighted “I used to be bored to death in my normal job until one day, I asked (begged) to be part of a specific project. I’m so glad they granted my wish. I now work 55 hours a week! I am super motivated and nothing is going to make me want to leave that project”. Still think letting people select their project is a bad idea? - Analytical-Mind.

Go ahead, give it a try and see the results for yourself. I have tried this approach on many occasions and the results always impress me.

The strength of a real team is under-estimated

Image by Dawn (Willis) ManserProject kick-offs have been used for years as a way to launch a new project. It is assumed that bringing people together in a room where the project sponsor presents the project’s objectives and time-lines is a good way to get things going. To be sure that the newly formed team will perform well, some organizations even order sandwiches or sushi and add diet software drinks or beer, and so the project begins.

I really don’t have a strong opinion about project kick-offs but I do see a great opportunity to start building a real-high-performing-team from day one is often missed.

Having been part of great (and not so great) teams over the years, I’m obsessed about creating real teams – the ones we remember forever because we delivered outstanding results while being highly energized, and had a great time doing it. It is similar to the concept of Flow proposed by Mihály Csíkszentmihályi.

Flow is the mental state of operation in which a person in an activity is fully immersed in a feeling of energized focus, full involvement, and success in the process of the activity. [...]

According to Csíkszentmihályi, flow is completely focused motivation. It is a single-minded immersion and represents perhaps the ultimate in harnessing the emotions in the service of performing and learning. In flow, the emotions are not just contained and channeled, but positive, energized, and aligned with the task at hand. To be caught in the ennui of depression or the agitation of anxiety is to be barred from flow. The hallmark of flow is a feeling of spontaneous joy, even rapture, while performing a task[2] although flow is also described (below) as a deep focus on nothing but the activity – not even oneself or one’s emotions.

Colloquial terms for this or similar mental states include: to be on the ball, in the moment, present, in the zone, wired in, in the groove, or keeping your head in the game. Wikipedia.

So back to creating a real strong project team (The Wisdom of Teams: Creating the High-Performance Organization). Why not start with something simple, real simple? Establishing rules and protocols of operation for the team.

As a first step in launching a new team, I usually start with an initial meeting (the duration varies based on the size of the team and the project being undertaken) during which I ask the team members to establish their working protocol – how they wish to work together.

Here are some of the questions the team members need to answer prior to doing anything else – including actually starting the project:

  • What do we wish to accomplish together?
  • What ground rules will we play by?
  • How do we make decisions?
  • How long can discussions and debates go on for? Do we use time-boxes in meetings? For decision making?
  • How do we resolve disagreements?
  • How often do we need to meet? For how long?
  • How will we communicate with each other?
  • How do we keep track of our action items?
  • How do we deal with team members who do not live up to the team’s expectations?
  • What rules do we have to include new team members? To expel existing team members?
  • How will we know if we are successful as a team?

Some of these questions may appear to be trivial. While establishing a team protocol doesn’t need to take a lot of time (and can easily be combined with a team building activity), not establishing such a protocol will quickly lead to inefficiencies, waste of time, and increased frustration for the team members. Want a few examples?

  • Did you ever find out that some project team members’ personal objectives had nothing to do with the project? Trying to motivate those people will drain your energy and your focus.
  • Has a detailed technical decision ever been taken by a senior manager with weird consequences? Guidelines may have prevented the decision from being escalated in the first place.
  • Have you participated in meetings where key people didn’t show up or showed up late with the consequence of having some decisions over-ruled? Determining up front the rules around meeting attendance and decision making will greatly alleviate such frustrations.

These are only a handful of examples but time and again, I have had the privilege to launch teams on the right foot. The consequences are positive and the cost is minimal. It may not be as cheap as buying sandwiches for the team during the project kick-off but the investment will last much longer.

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