By Anna Cook, Cox & Palmer
Most business owners have felt the pinch of not taking a salary. Owners are often the last to be paid, making a personal sacrifice for the overall benefit of the company. However, while the owners may be prepared for such altruism, employees may not be—especially those who are specialized, talented, and highly sought-after by competitors. How do you attract and keep the talent that you need at a time when high salaries are not an option? Can you realistically expect to keep your team together, motivated, incentivized, and compensated when they aren’t being paid what they are probably worth? The short answer is yes. Here are a few ways.
Recent studies show that the newer generation of workers is motivated differently from previous ones: they want an income (obviously!), but they also want more intangible things like work-life balance, constructive and meaningful feedback, a positive and respectful working environment, and the sense that they are genuinely making a contribution to something important. Research in this area cites the intrinsic rewards of autonomy, mastery, and purpose. For business owners, this line of thinking presents an opportunity to build a team that is happy, valued, and valuable. Prioritizing such intangibles as flexible working arrangements, workplace culture, and workplace diversity will create the type of fresh and innovative working environment that many employees crave.
On a more tangible level, if you are willing to part with some of the ownership of your company, employees can be compensated for their efforts by being issued shares. You can give employees a piece of the action by issuing some shares in exchange for services performed or as part of a bonus or incentive plan. Such a structure requires careful planning and analysis from a legal and accounting perspective, and must be set up appropriately, but if done properly, can lead to a really positive outcome for everyone involved. It creates a situation whereby, as part owners of the company, employees do well as the business profits and grows: they share in the fruits of their labour. This fosters a sense of pride of ownership that comes from working for oneself.
That said, if you are not quite ready to cede any part of the ownership, an employee stock option might be a reasonable alternative. Commonly used in start-ups and fast-growing companies, employee stock option plans are diverse in design, but at their core, they all operate on a similar principle. They are a right granted to an employee to buy shares in the company for a certain price (the “strike price”) at a certain date in the future (the “vesting date”). The employee maintains the right to acquire the shares based on the strike price rather than their market price; the idea (and hope) is that the value of the shares will have increased by the vesting date. In that case, on the vesting date, the employee buys shares for the strike price and then holds them or cashes them in for fair market value and pockets the difference. Again, this is a structure that needs to be developed with the help of sound legal and accounting advice, but the results are worth the effort: if the company does well, then the employees do well too.
In today’s workforce, money isn’t everything. And if the only thing driving the team is salary, then maybe it’s time to reconsider the roster.
Anna Cook, Cox & Palmer
Anna Cook is a partner at Cox & Palmer, St. John’s, where her practice focuses primarily on corporate and commercial, employment and labour, and privacy law. She handles matters including commercial financings, commercial real estate purchases, financing and leasing, share sales, asset sales, mergers and acquisitions, and joint ventures. She has extensive experience acting for clients ranging from small-business start-ups to large multinational and international corporations and has advised businesses at every stage of the business cycle. A strong supporter of women in business, Anna is an active NLOWE member and a presenter for the NLOWE Entrepreneur of the Year Awards.