Michael J. Meehan writes:
Successful entrepreneurs tend to live, breathe and sleep their businesses. They make decisions based on what is best for the business, often to their own immediate personal or financial detriment. With so much personal investment, hiring and incentivizing employees can be among an entrepreneur’s greatest challenges.
Last week, Fast Company featured an excellent article written by Drew McLellan on this subject entitled, “How to Give Every Employee a Personal Stake in Your Company.” McLellan’s piece encourages business owners to think about how they are investing in their employees. He challenges entrepreneurs to evaluate the company’s big-picture objectives and to consider whether their employee salary and bonus structures are aligned with those goals.
As an example, the article mentions an advertising company that cancelled its traditional holiday bonus program in favor of allowing all employees to share in a bonus pool tied to the company’s adjusted gross income (AGI). Under the new policy, employees had a clear incentive to (a) understand what comprises the AGI figure and (b) take steps to monitor expenses, reduce overhead, and encourage new client acquisitions to increase AGI (and the bonus they could ultimately earn because of it). Although McLellan acknowledges that the utility of such a policy would vary greatly across industries, the value for him is in the process: Employee policies and agreements play an important role in incentivizing executives and employees to invest in a company’s success, and a successful entrepreneur should ensure that such policies and agreements are serving the company’s best interests.
The article provides useful advice to entrepreneurs facing hiring decisions or seeking to craft creative policies to help meet company objectives. In particular, an incentive program such as a bonus pool or option plan can be a terrific way to motivate employees and align individual and corporate goals. However, I would be remiss not to add an important caveat to McLellan’s suggestion: All employee policies, agreements and incentive arrangements and any changes to them should be reviewed on a regular basis by the company’s legal counsel to ensure the incentives comply with federal, state and local laws. An open line of communication between the company and its attorney will help to ensure that these types of employee arrangements align with the company’s big picture objectives and that any risks to the company or its employees with respect to such arrangements are identified as early as possible.
Michael J. Meehan is an associate in the firm’s Exton, PA office.