Beyond Microsoft Millionaires and Rich Googlers: Workers as Owners
Last week, I spent an afternoon with senior executives and front-line employees from a remarkable small company—one that offers big lessons for companies of all sizes. Reflexite, based in Avon, Connecticut, makes the reflective safety material that gets attached to tractor trailers and police cruisers, construction cones and roadwork signs, firefighters’ coats and cycling vests. It also makes thin films that are a key part of the screens for mobile phones and laptops.
Business has been good. The company has annual sales of $100 million, up substantially over the last few years, with major facilities in Connecticut and Rochester, New York, as well as 14 locations outside the United States. How has Reflexite held its own against giant rivals such as 3M, with deep pockets and a vast global reach? By encouraging employees at all levels to be personally invested in the success of the company—literally.
Reflexite, it turns out, is owned in large part by the people who work there—500 employees who attend Town Hall meetings to discuss strategic issues, get monthly updates on finances and operating results, and are steeped in the company’s strategy and practices. Over the years, based on the performance of their business unit or location, workers received shares in the Employee Stock Ownership Plan (ESOP) worth 6 to 18 percent of their salary— including 60 workers in a factory in the former East Germany, and, starting this year, 110 workers in China.
No one is going to confuse an engineer or project manager at Reflexite with a Microsoft millionaire (of which there were a staggering 10,000 by the year 2000) or the newly minted stock-option millionaires at Google (where an estimated 1,000 employees have a net work in excess of $5 million). Still, the shares have performed well. Reflexite’s ESOP took shape in 1985, with an initial contribution of $150,000. By 1995, the ESOP shares were worth $20 million. Today, the ESOP has a value of $40 million.
The Wall Street Journal recently named Reflexite one of America’s Top Small Workplaces for 2007—and after visiting the company, I understand why. For this organization, “a sense of ownership” isn’t just a state of mind—it is a fact of life. Nor are shares simply a form of compensation—they are vehicle for participation in vital company affairs. (Indeed, after employee-owners urged the company to revise the formula for issuing shares, the board approved the change.)
Cecil Ursprung, the company’s long-time CEO, who now serves as a director, thinks deeply about the impact of a company whose people think like owners. “People are at their best when they’re in a constant state of mild dissatisfaction, when they’re always looking to make things a little better,” Mr. Ursprung said. “That’s what ownership does. It’s remarkable what gets unleashed when people share in the wealth they help create.”
What are you doing to create a sense of ownership—literally, figuratively, or both—inside your organization?
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William C. Taylor is an agenda-setting writer, speaker, and entrepreneur. His new project, Practically Radical, chronicles the radical shifts transforming business and the practical steps that will determine who wins. His most recent book,Mavericks at Work, has been a New York Times, Wall Street Journal, and BusinessWeek bestseller. As cofounder of Fast Company, he launched a magazine that earned a passionate following around the world. He is an adjunct lecturer at Babson College and a former associate editor of Harvard Business Review.
Comments
Sir,
The concept of employees being part-owners is indeed a laudable ideal that has been successfully implemented by several enterprises.
Some practical issues need to be addressed if the idea of ESOP has to gain momentum. ESOPs were introduced, particularly in the IT sector, in India, when the sector was experiencing a boom. More than inculcating a sense of involvement, it was meant to be a retention strategy in an era when attrition rates were spinning out of control. The experience thus far, notwithstanding the claims about the number of millionaires and billionaires created in the process, is not very encouraging. ESOPs have not significantly helped in bringing attrition rates down nor have they contributed to increased productivity.
One reason for this anamoly could be that ESOPs generally have a lock-in period, ranging from three to five years, within which the stock cannot be sold. In this scenario, the notional wealth created might be offset by the realization of having to work for an organization that one may not like.
A second reason could be the issue of transfer pricing. Even with a lock-in period, ESOPs may be very attractive if the stock is allotted at face value or a nominal premium. Due to regulation and other factors, the tendency is to allot stock at or near the market price. This negates the notion of wealth and is counter-productive in terms of motivating employees to give off their best and to stay with the company.
It would be helpful if suggestions to overcome these obstacles are made.
Warm Regards
- Posted by B V Krishnamurthy
November 23, 2007 3:42 AM
I am the medical director and president of a small medical corporation. In light of medicare and other insurance reductions in reimbursements, along with poor employee performance, I recently instituted a compensation program in which I offered a percentage of our monthly bank deposits to my insurance biller, and to my scheduler. This is in addition to their usual salaries. In the month folowing the instution of this program, the practice income doubled, and at the end of the third month our income trippled.
I found that by giving each employee an "uncomfortable salary," while allowing them the opportunity to increase this salary by increasing their producton, they are more motivated to perform at a higher level, and in so doing, our overall practice income has increased significantly.
Could this program be effectively applied to other businesses, or is there a hidden downside.
I would appreciate your input.
Thanks
- Posted by J. A. Trott
November 24, 2007 6:15 AM