Forget IPO; Think profit-sharing

By Ed Sperling, Sm@rt Partner10 July 2000Going public used to be the best way to keep your employees happy. Now, it can make them miserable.
Written by Ed Sperling, Contributor
By Ed Sperling, Sm@rt Partner
10 July 2000

Going public used to be the best way to keep your employees happy. Now, it can make them miserable.

Putting together a compensation plan that will keep your employees loyal and productive is getting tougher--and potentially a lot more expensive.

Until several months ago, if you ran a public company, you could offer employees a stock-option package that would lock everyone in for the next several years. That was before the fed decided to cool down the economy by raising interest rates, creating a ripple effect in the dot-com market and putting a damper on stocks, in general. Once that happened, many workers' options turned out to be nowhere near as valuable as they had hoped, and some companies that were planning to go public put off their IPOs for months--or until further notice.

Now, almost overnight, it seems options aren't what job seekers crave most. The get-rich-quick syndrome has been replaced by a combination of stock plus up-front compensation, and that's going to cost public companies a lot more money. New employees are every bit as hard to find as they were six months ago, but now they're far less likely to be lured only by stock options and the argument that if they work hard, they'll benefit alongside their co-workers.

Options have proved to be a great way to minimize operational costs because, for the most part, real riches are paid out by investors rather than by employers. And while the stock market was willing to bear that kind of rapid return, employers didn't have to pay their workers nearly as much as a labor shortage would indicate.

Well, it was nice while it lasted. Investors are now getting a lot more comfortable with relatively modest returns, and with fully insured bank CDs now running into the 7 percent range, don't be surprised to see investment dollars start slipping out of stocks and into more stable returns.

For smaller solutions providers, this may prove to be very good news, indeed. Opportunities for mobility, added responsibility and the personal attention you can get in a small organization can be very attractive. Throw in some profit sharing, and you may find job seekers banging at your doors for the first time in years.

But for larger and, in particular, public companies, which have been the darlings of investors in recent memory, maintaining morale will become more of a challenge if the stock performance flattens or sinks. At that point, a backup compensation plan will be needed, or years of employee development could unravel very quickly.

Going public used to be the best way to keep your employees happy. Now it could have the opposite effect. What a difference three months can make.

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