Employee ownership
Ideas for keeping employees, who expect more than standard benefits, happy. June 6, 2001
Question
I have key employees looking for more than just wage increases or standard benefit package incentives, both of which I offer. There are many different ways to structure companies for such matters, but I am looking for input specific to our industry. I currently am structured as an S-Corp, and own the majority of shares (one other person owns the rest).
Forum Responses
Talk to your accountant. Any way you structure it, it will cost to give ownership. If you give someone 5% over 5 years based on today's book value, that gets taxed unless the person is family and you can structure it as gifts. If 5% was worth 10,000, you would need to bonus them to pay the taxes. You may want to look at a "C" corp and an esop.
Consider ownership/control and investment/ROI and risk issues. How many employees have their names on your company's notes with the bank? I guess none. What protection does an employee have if the company goes bankrupt? Unemployment insurance (around 2/3 weekly pay in my state). What do you get? Second mortgage on your house and second job. Be careful--pay employees well considering what the market bears, what they contribute above what is expected and what you can afford according to your business plan. I've seen some really good employers go bankrupt.
No amount of paperwork will make two partners stay together. They will only continue to do business for as long as it makes good sense to both of them.
Where you want your paperwork is in the matters related to corporate dissolution. Someday this business arrangement will have to end. Right now, while everybody is happy (and alive) is the time to sort out eventual distribution of assets and equities.
A possible way to embark on this new relationship is to simulate it. Pay them for one year the same way you pay yourself. Draw against commission. You can pay any salary you want to anybody. As an owner you really only get to keep that salary if you can. An employee will always get his money in the end.
Try this or something like it for a year. See how these new partners (and their spouses) feel about it later.
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