On Monday, I look forward to reading the Business Section of Philippine Star. Your column is such a big help for entrepreneurs like myself.
I am engaged in the importation and wholesale distribution of corporate gifts and premiums. I have been in the business for the past 16 years and have had two loyal managers–one is handling sales while the other is handling accounting. It has always been my dictum to reward good employees, based on good merit. While they enjoy average compensation, the sales team, in particular, gets a more than generous commission.
My question is regarding stock options which I would like to offer my staff. I am not very good in finance and have only learned this from years of experience and from reading management books. Can you please define what a stock option is, including its advantages and disadvantages?
It is heartwarming to hear from entrepreneurs who are not only giving what is due their people but are also willing to share the fruits of the work with employees and executives. The entire idea in stock options is to make employees and executives act like owners of the firm. The concept assumes that if employees and/or executives own the business, they will act like entrepreneurs and go beyond the normal expectations.
This implies that part ownership will motivate them to go the extra mile because they will share in the financial rewards. This can range from dividends to improved stock price (if the company is listed). Improved stock price of a listed company will allow the employee/executive stockholders to sell out the stock at a higher price and, therefore, make money.
However, if a firm is not listed, the only motivation left is the issuance of dividends. But minority stockholding in a closely held firm cannot influence the dividend policy. In such a case, how can stock dividends really serve as a motivator?
If the objective is to recognize and reward your two loyal managers for thinking, acting and moving like entrepreneurs (or co-owners of the firm), what may be better is to install a system that will consistently recognize and reward loyal performers. However, I do not advise loyalty as a sole basis. Recognizing loyalty without performance will send the wrong message to the organization. Recognizing and rewarding loyal personnel who perform will send the right message. But one must not install a reward and recognition system that is not linked to the company vision, mission, objectives, key performance indicators, and strategies.
The system must recognize and reward loyal personnel who performed their strategic roles in the formulation and implementation of the strategy. In addition, the implementation of the strategy must have resulted into a company performance that exceeded the performance indicators. Recognize those who performed. And reward them according to how much of the performance indicator was attained or even surpassed.
However, a pure loyalty program is not to be discouraged. Loyalty of employees and executives must also be recognized and rewarded. But it is important to clearly define what loyalty to the firm is. Furthermore, any loyalty program must not be undertaken if it creates a distortion in the compensation structure of the firm. Neither should it make the firm uncompetitive. If left unchecked, the firm may have people being paid five times the minimum wage for doing tasks that a minimum wage earner can do just as well. Loyalty program will only work if loyalty leads to improved competitiveness.
It is best to reward loyalty outside the regular compensation package. It is best to consider it as a once-a year recognition of tenure with performance that allowed the firm to, at least meet its minimum performance indicators. People who have stayed but have not positively contributed to the performance indicators of the firm are not loyal. As such, the minimum measurable expectations must be laid out for each person at the start of the year. Personnel who do not contribute to the firm’s key result areas and performance indicators do not deserve to be called loyal.
This process of defining expectations per person is the logical extension and detailing of the firm’s vision, mission, objectives , key result areas, performance indicators and strategies into program, activities, and tasks. As part of the strategic planning process, individuals in the firm can be assigned tasks. A group of tasked individuals deliver activities. Strategies are a set of implemented activities. As such, each individual can have an expected minimum that is aligned with the firm’s key result areas and performance indicators. Each individual can have an expected minimum outcome based on tasks assigned, activities participated in, and strategies contributed to.
This process is the same process that will identify people who performed above the "loyalty to company" level. Individuals whose performance were higher than the expected outcome assigned to them must be recognized. They, too, must be rewarded relative to their share of the increment beyond the expected performance.
I encourage entrepreneurs to have a heart. This reader is one of those who must be emulated. When the firm makes extra money, it is good to share it with performing loyal employees and executives. But first recognize and reward those who contributed to the making of the extra money. Differentiate the loyalty awards from performance awards. However, give special attention to those who are loyal performers. They are a different breed and must be propagated and allowed to multiply in the organization.
Ultimately, entrepreneurs with hearts must also be recognized. They must be encouraged to propagate and soon become the standard in the business community.
(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: ace@aim.edu.ph. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).