The 2011 Employee Ownership Conference
(Hosted by the Beyster Institute and the NCEO)
by Ben Durwood
The Beyster Institute at the UC San Diego Rady School of Management, along with the National Center for Employee Ownership (NCEO), recently hosted their 2011 Employee Ownership Conference in Denver. The event gathers hundreds of company leaders, employee owners, and industry professionals to allow them to engage one another and learn from industry experts. The main activities at the conference are the 67 different breakout sessions, each led by industry leaders who have expertise in particular areas of employee ownership, ranging from company valuation to social media marketing.
During one session led by Tony Mathews and Corey Rosen, we discussed the importance of communicating financial metrics to employee owners. By communicating financial information to employees, not only do employees become increasingly aware of their firm’s financial performance, but they begin to understand the direct relationship between their work performance and the company’s bottom line.
However, it is important for company leaders to realize that communicating financial performance is not achieved by reading a list of line items from last quarter’s income statement or by e-mailing employees a copy of the general ledger. Communicating financial performance is only effective when it is in terms that the employee can grasp without becoming a certified public accountant. For instance, more appropriate financial metrics would include the effect on net income of achieving increased customer satisfaction, faster delivery times or reduced error rates. This will provide employees with a more concrete way of understanding how their work performance affects company performance.
One challenge that we face at the Beyster Institute is effectively communicating the benefits of employee ownership to broad groups of people. Surprisingly, it even can be challenging to convey these benefits to the employees themselves. During one luncheon at the conference, I discussed this issue with the director of Human Resources of a construction company that has already implemented an ESOP. Apparently, a significant portion of her employees are skeptical and even fearful of the consequences of distributing ownership to employees.
2011 Rady MBA and Beyster intern
This skepticism indicates a severe lack of understanding among the employees as to the effect of employee ownership. Receiving an allocation of ESOP shares is a clear “win-win” from the employee’s perspective, provided that the company does not attempt to use an ESOP contribution as a substitute for salary, 401(k) match, or other benefits (which, it turns out, was not the case with this company). This confusion on behalf of employees could prevent the company from realizing the benefits of employee ownership, including improved cost management, process improvement and idea generation.
As we identify future service offerings at the Beyster Institute, one of our main objectives is to provide more assistance to companies in developing an employee ownership culture and imparting an understanding of the mechanics of their employee ownership plan. By successfully creating an employee ownership culture, a company can realize the full extent of the benefits offered by sharing ownership with employees.
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