In yesterday’s post, we explored the benefits of making your employees shareholders of your organization. Today’s post will cover the drawbacks and challenges behind making your employees shareholders.
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Keeping Accurate Accounting Records and Accurately Distributing Shares Is Challenging
If you decide to offer your employees shares, you’ll need an experienced tax and securities attorney to help you determine how to divvy up the shares and to help you keep all of your records and bookkeeping straight because it can get very complicated when you have multiple employees, especially if you’re planning to continue to scale your business and gain more profits and employees.
If you have a merit-based or performance-based system that determines how many shares an employee receives, this can get complicated to distribute as well, seeing as how performance metrics go up and down all the time, employees move to different parts of an organization all the time or leave the organization, and so on.
What’s more, your shareholders (employees) will expect regular reporting on your organization’s financial standings, too, so you will need to constantly put a lot of time and effort into accurately distributing shares and keeping up-to-date records and details of your organization’s financial health and standing.
You’ll Likely Receive Pressure to Make Bad Business Decisions
While your employees will care more about your business and be more productive workers when they become shareholders, they still may not end up making the best business decisions for your organization.
For instance, they might pressure you to make acquisitions or sell portions of your company to increase dividends or overall equity, even when it’s not necessarily the best business move to make. Or, they might want to implement certain policies or procedures that don’t help your organization earn more or be more productive. Or, they might refuse to sell your company when it’s the best time to sell it and there is a viable offer on the table for it.
Employees Don’t Always Want to Be Shareholders
For business owners and executives, it’s hard to believe that some employees won’t want to be shareholders, but it’s true. Some employees just want to come in and do a good job and collect a paycheck. And they don’t want to deal with the ups and downs of their organization’s business dealings or worry about its future every single day that they come into work.
You Might Experience Loss of Owners’ Privacy and Potential Dissolution
When business leaders must disclose all their organization’s financials, they lose privacy to withhold certain information for a variety of different reasons. Again, some employees will feel much more comfortable with being privy to an organization’s regular ups and downs than others will.
And sometimes an organization’s owners or leadership might end up forfeiting too much equity to their employees, which means that their aptitude and desire to be great leaders might start to wane over time, which can become very problematic to the future success of any organization.
Be sure to carefully weigh the benefits and drawbacks to making your employees shareholders, as outlined above and in yesterday’s post, before making any final decisions that will be hard or impossible to overturn.