Employee Ownership – A Startup Value Additive 0

Abraham-George,-Ennoventure

Employee ownership generally increases a firm’s productivity, growth, and longevity, improves individual outcomes, and provides opportunities for more equal wealth distribution. Let us understand how Ennoventure is making use of “Employee ownership” to ensure that employees become financially free by owning a piece of Ennoventure business, benefit from its success, and create long-term wealth.

Any good intention necessitates significant action. A belief leads to behaviour, which leads to results.

 Why Do People Work for a Company?

If the pandemic has taught us anything, it is that employees want the organization to be more human. Nothing can take the place of pay, bonuses, and benefits. But the employees crave shared identity and purpose, wealth creation, a sense of belonging, and interactions.

Management approaches to employee-employer relations have always been ‘transactional’— “we pay for your work,” or “your bonus is linked to the target.” Transactions used to run the business daily, and they still do, but things were changing faster.

More employees became entrepreneurs, customers demanded different things, and technology has democratized this world. But the approaches remained somewhat similar. Cash was the king in the ‘employee game.’ However, like a chessboard, the king has limited powers. Everyone wants a fundamental shift, at a faster pace, in how we think about work, employment, and people. 

The World of ‘Totality’ 

Ennoventure founded in 2018, solves an age-old problem — the need was always there, and the world has been fighting fake, counterfeit products for a long time. However, our novel approach and technology provide solutions that make your life safer, easier, and more informed.

Employees are partners in this Ennoventure journey. We’re in it for the long haul, together. Our vision is that employees will be invested in the company, benefit from its success, and create long-term wealth.

With the help of Peoplsense, our people partner, we are evolving our “total value creation” model that lays equal emphasis on our short and long-term commitment to employees.

For Ennoventure, our vision is that employees should be financially free by owning a piece of Ennoventure business. Moreover, successful startups grow at an exponential rate. Employee salaries, on the other hand, are mostly increasing by single digits or lower double digits. We want our employees to drive our growth and benefit from it as well.

Wealth Creation for All 

Naval Ravikant, in his famous 2018 tweetstorm of ‘How to get rich without being lucky?’ did mention that “You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain your financial freedom.”

For Ennoventure, our vision is that employees should be financially free by owning a piece of Ennoventure business. Moreover, successful startups grow at an exponential rate. Employee salaries, on the other hand, are mostly increasing by single digits or lower double digits. We want our employees to drive our growth and benefit from it as well. 

Our Journey towards Long Term Incentives (LTI)

Long Term Incentives originated from the philosophy of revolutionizing capitalism and ‘Employee Ownership”. Ownership fosters trust and commitment, as well as a sense of shared belonging.

For any startup, choosing the right plan becomes immensely critical. The factors that impact decision making are manifold. Other than the typical parameters of the type of organization, valuation, funding, etc, the parameters like type of workforce, tax efficiency in multiple locations, impact on employees, legal and regulatory clarity on different plans also affect your choice.

It was a learning process at Ennoventure to come up with the most feasible plan. With the help of Peoplsense, we dissected this process using a ‘decision tree’ model and asked ourselves the questions like:

  • Should we offer equity or cash?
  • What are employees going to value? Which is the most straightforward plan to communicate?
  • Should we offer it to all employees or a select set of employees?
  • Should we have single or multiple LTI plans?
  • Should we offer the LTI for the global entity from HQ or the subsidiary entities?
  • If it’s equity, do we want it for the Full Value (ESOP) or just for the appreciation (e.g. Stock Appreciation rights)?
  • Do we want it to be performance-based (performance shares), restricted (restricted stock), or stock units?
  • If we do not want to grant equity, do we want long-term cash based on the equity valuation?
  • How will we offer this LTI plan for employees spread in different geographies and multiple legal entities?
  • What are the legal and regulatory requirements linked to different LTI vehicles, and how is it impacting our choice?
Also Read:  Why You Can Never Empower People, but Must Engage Them

Furthermore, factors such as the stage of business, workforce plan, business plan, employee value in the market, and growth strategies all have a significant impact on the choice.

The decision tree assisted us in developing a logical pattern that will lead us to a solid conclusion through the process of elimination. It also enabled us determining the type of long-term incentive plan that will best fit Ennoventure’s profile. Such an analysis was critical in deciding the LTI plan that will fuel growth while staying within the financial parameters that ownership is willing to consider.

We were able to narrow down two options. Then we went down the rabbit hole of each option to discuss its pros and cons. Finally, the Employee Stock Option Plan, based on the common stock, was chosen as the most suitable one for Ennoventure.

The first employee equity plan was launched in the US in 1956 and the first ESOP plan in India was given by Infosys in 1994. Now LTI has many more vehicles using equity, phantom equity, units, or even cash but ESOP still remains the “Xerox ” of the LTI plans. Even the Indian Income-tax rules of India also call it an ESOP plan or scheme. 

The Next Steps

Once the vehicle (ESOP) has been finalized, the next step is to fuel the vehicle, identify the travelers, and map the journey and milestones.

An LTI plan (for all or a select set of employees) is typically for 3-4 years, with shares vesting at equal intervals (Graded) or at the end (Cliff). The trend has been to buy back the shares to fund their future VC rounds after employees elect to purchase the options. Employees can also choose to own shares and use them once the company goes public.

Conclusion

The must-have factors for an entrepreneur are a) people who are smarter than you, b) who are committed to your purpose, and 3) who travel with you on the journey. Here, employees should feel that vibe of autonomy, flexibility, trust, and ownership.

A business cannot be considered “responsible” unless it is committed to employee ownership. More than the sense of ownership, it gives the comfort for employees to speak up and hold their leadership accountable.

The key here is to create a plan that is in sync with the company’s vision, strategy, expectations, and financial parameters. We clearly understand that the right plan can help Ennoventure attract and retain the right people, and ultimately increase economic value for both shareholders and participants.

SHRM defines inclusion as “the achievement of a work environment in which all individuals are treated fairly and respectfully, have equal access to opportunities and resources, and can contribute fully to the organization’s success.” Going with this definition, employee ownership or LTI is not just a reward strategy but an inclusion plan as well.

About Ennoventure

Ennoventure Inc, started in 2018, uses its patented cryptographic technology to control parallel imports and counterfeit menace. Their solutions ensure brand protection, tracking & tracing, and enhance brand engagement through AI, Cryptography, Blockchain, Geofencing, and embedded systems.

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Abraham George is the Chief People Officer at Ennoventure and Founder Partner at Peoplsense. He has over 25 years of rich corporate experience in senior management roles across many leading companies like Ooredoo, Airtel, Oberoi group, BPL across India & the Middle East.

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