So many agency owners give away equity in the agency they’ve poured their heart into building only to find the gift didn’t result in the outcome they’d hoped.
View Video Transcript
Hey there, everybody. Drew McLellan here from Agency Management Institute coming to you this week from Jackson Hole, Wyoming. We were with the PEER Group this week and we were talking about how do you retain your long-term, super valuable employees? How do you put in essence golden handcuffs on those employees? We're going to talk about it for the next couple of videos. But I will tell you that we started the conversation with what you should never do. Giving equity, giving a part of your company away is never, I want to underline, never, ever, ever a good idea. I don't care if it's phantom stock, I don't care if it's real stock. Do not give away your company. Here's the deal. When you say to an employee, even the best employee, Hey, I'm going to give you equity. No one is going to say no. Why would they? It's a free gift. But I will tell you there's something very different about the investment level and the commitment level of someone who has to buy those shares, even if they're deeply discounted, if they have to buy them versus giving them. I cannot tell you how many times I have counseled agency owners who gave away, despite my advice, who gave away stock in their company. Phantom Stock, real stock, it doesn't matter. And they thought that 1%, 2%, 5%, even 10% was going to be meaningful enough to the employee that it would mean they would stay forever. Two things. Being a minority owner where you have no vote, there's no succession plan. I don't know if I'm buying in or not. I didn't have to pay for it, and I don't really get any benefit. My vote doesn't matter. Yeah, I get a little dividend maybe. But other than that, everything is the same. It's not sticky enough to keep an employee who wants to leave. They get offered $20,000 or $30,000 more. Your equity is meaningless to them. And if they leave you by their own volition or yours, you have to buy that stock back. And I will tell you, there is nothing more galling than having to buy back a part of your own company that you gave away in good faith to an employee. So, absolutely not! Do not give away stock, phantom or otherwise to your employees. We can talk about how to sell it to them at a discount. We can talk about giving that to them as step one of a multi-step process in terms of them buying you out. But just giving it to them and thinking that's going to keep them there, you're crazy. And it's going to cost you money and it's going to irritate you. There is nothing worse than having an employee come in and give you notice, and now you have to buy them out of your own generosity. So just don't do it. All right? We'll talk next week about some ways you can put golden handcuffs on employees, ways that you can enhance their experience so that they never want to leave you. But equity? Never a great idea. Okay? I'll see you next week.
« Where is your 2023 revenue going to come from? | Should your project managers be billable? »