Skin in the game – In praise of employee equity

A recent Research Live interview with my ex-boss, Nick Sparrow, founder of ICM, extolled the virtues of offering equity to agency staff. It was Nick who taught me in the early 80s how to sell research based on its benefits not its features (which, given my statistician’s focus, at the time was a revelation).

Nick expounded his vision of a business “run solely for all the people employed” where a company is best run, and gives the best service to clients, when the people feel a sense of ownership. It’s interesting to note that two of the UK’s ‘thought’ leading agencies (both of whom have won Agency of the Year) Brainjuicer and Truth appear both to have embarked on similar ownership structures.

Although, ICM was owned by 10 shareholders before its sale, Nick was interested to see research businesses go further than that – to make all employees shareholders. Here the clients benefited as their interests were best served and reinforced by the servicing team who in turn profited from satisfied, returning, regular clients.

Perhaps one of the best examples of success stemming from depth and breadth of staff ownership is the Asian-based Survey Research Group. SRG, founded in 1964 by Newell Grenfell, had a policy of regular rights issues to senior and long serving staff. When it was finally acquired by Dun & Bradstreet in 1994, SRG was a global top 20 agency and its shareholding extended over 200 employees in 14 countries. These were not only senior managers but comprised dozens of the operational and back office staff who’d put in the hard yards to set up everything from the rural field forces in the remote islands of Indonesia to the sampling team continuously mapping and re-mapping Hong Kong’s ever-changing cityscape.

As a country manager, in the SRG environment, you were under pressure not from the ‘Street’ but more poignantly from your peers in the other markets. If you came in with poor numbers you had not only impacted your personal wealth but those around you with whom you dealt daily. Needless to say, those with the glowing bottom lines earned the bragging rights and the laggards felt honour-bound to up their game.

Given all these benefits, I am sometimes bemused when I hear senior staffers reluctant to take up equity when it is offered, especially in cases where they have to pay for it, albeit at a discounted rate

Late last year, a former colleague asked advice on a new job she’d been offered. The salary was less than her current, but there was stock ‘valued’ at much more than the pay difference. She was concerned her living standard would drop, even though the job was very appealing. These are all reasonable concerns, but she was underestimating the potential upside of the equity, not only financially, but ‘emotionally’.

Holding equity is not just about getting a pay off when the company gets sold up stream. It’s about ownership and having some personal commitment to the success of the business. Or, as was put to me by John Lewis, President Nielsen US, it’s ‘having some skin in the game’. You’re not a spectator thrilled by your team’s win; you’re out there on the park creating and living that victory. If you have your own money in the business or you’ve foregone salary to get a slice, the pressure not to let team down elevates your performance and its impact on the business.

There are substantial benefits to the ‘founder-owner’ of any service business both emotionally and financially. Prudent distribution of the equity defends against inward-thinking as others in company realise they too will lose money (not just a job) if management decisions are consistently sub-optimal. In effect, it increases the vision and visibility to the business of what’s happening outside in the market and amongst the competition.

So the advice to my colleague was to go for the job that had equity so long as she was sure the owners were sincere in making a go of it. You sometimes need to take a risk and make a few sacrifices. But it’s not so much the potential windfall down the road, it’s the sense of ownership which drives your performance and that brings its own rewards.