One of the elements that employee owners in an ESOP must come to grips with is the short term vs. long term views of business. Educating employee owners on how the company balances these two views should be a priority and a regular activity.
The company may have great products, strong market penetration and high profits today, but maintaining this status typically requires investments in new products or services. These investments can be funded by internal cash flow or outside debt. Either way, these new ventures will diminish stock value in the short term with the hope that greater value will be created long term.
The timing of these new ventures in conjunction with when employee owners decide to leave the company can create an uncomfortable situation. Specifically, in a new growth cycle, the employee owner will receive a lower stock value for their ownership balance and may feel they are getting the short end of the stick.
To avoid these situations companies need to invest the time and effort in educating the employees on how a new venture will impact stock value and how the company has to look out for the welfare of employee owners today, as well as those five, 10, 20 or more years down the road. Educating employee owners gives them the information to make a better decision on when to the leave the company if they want the highest value they can get.
This is a balancing act that every ESOP company and every employee owner should become skilled at.
Flickr photo by Hotdog Photography
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