Heritage

Stock ownership is one sure way of earning staff loyalty

teamwork

Stock-based compensation is becoming increasingly important in retaining talent and easing small companies’ succession plans. Photo/File

The Business Daily last week carried an article that should get every business owner thinking. The chief executives of Barclays Bank of Kenya and KCB Group have bought their banks’ shares, signalling their confidence in the companies they lead.

READ: KCB, Barclays chiefs buy shares in their banks

The annual reports of the two banks show that Adan Mohamed, the managing director of Barclays and KCB chief executive Martin Oduor-Otieno bought shares last year.

An analyst from Kestrel Capital said no one was better-placed to evaluate a company’s prospects than those who run it, which is why many investors regard directors’ share -dealings as a key indicator of a firm’s prospects.

In the above case, it is possible that the CEOs bought their shares from the stock market. But under different circumstances, small businesses can offer their employees shares.

Employee share offer programmes: The employee stock ownership plan, commonly known as an ESOP, is a benefits scheme that places the employer’s stock in an account on behalf of the worker.

Company stock encourages employees to take a more personal interest in the company’s success. The shares make him an owner who can benefit from the company’s financial success.

In addition to providing benefits such as increased compensation, ESOPs give employees the incentive to improve their performances because they have a tangible stake in the company.

They get the same respect you would accord a partner. This makes it easier for small businesses to recruit, retain, and motivate staff.

When it comes to problem-solving, your employees should be your most valuable asset: after all, the people working there are the most likely to see opportunities for improving customer service, reducing costs and increasing efficiency.

You can tap great ideas and solutions by making your employees feel like owners of the company. When you get staff to view the organisation as if they own it, they are bound to be more passionate about translating their ideas into action.

Retirement: This is also an item on many to-do lists of business owners as they get older.

Three weeks ago we featured the story of 65-year-old A A Mithaiwalla, who runs a confectionery based in Nairobi’s Pangani area. The firm’s internal business organs have began to fail.

Mr Mithaiwalla’s biggest challenge is both economical and emotional. After putting years into his business, he has developed a strong attachment to it.

At the same time, he has a sense of loyalty to the employees and would like to see them continue after him.

Finding a way to turn his equity into cash for his sunset years is of paramount importance. As business owners retire, this issue will continue to pose a challenge.

Some entrepreneurs could turn over the company to an heir or sell to a competitor. But not all business owners have heirs ready to step into their shoes.

Outside buyers are also not easy to find. Even if they can be found, they may want to buy the company for its customer lists, technology and facilities. Others may simply want to put a competitor out of business.

These sales usually come laden with all kinds of contingencies that make them much less appealing than they initially seem.

Selling to employees can provide an answer. But the big question is, where would they get the money to buy shares?

ESOPs is the most practical alternative for companies: They are funded out of the tax deductible future earnings of the company, not by the employees.

This not only gives workers a substantial tax benefit, but also provides additional benefits to sellers, companies and employees.

For companies that are profitable and have at least 10-15 employees, ESOPs deserve a closer look.