This is another post in our question and answer series in which we try to answer questions posed by green industry business owners. Most of these questions are left over ones from webinars and speaking engagements.
Question:
Should an ownership opportunity be a part of the compensation package for a key manager in a landscaping business?
Answer:
This, of course, is a complicated question. I think most everyone agrees that one of the things you want to accomplish in a compensation package is to incentivize the management employee (and other employees too) to think like an owner. I don’t pretend to be an expert in human resources matters, but what I can tell you is that small amounts of stock ownership spread around among key employees can be a big complication when it comes time to sell the business. Far worse are relatively vague promises of equity interests that are sometimes made in order to hire or retain a key employee and that are never committed to writing. Such promises are often forgotten by the owners of the business, but almost never forgotten by the employee to whom the promise was made, no matter how vague it may have been. Resolving that kind of situation at the last minute while trying to close a transaction can add time and complexity to a transaction and create unhappiness among the employees, a key consideration of the buyer in most situations.
In our opinion, it is a better idea to create incentives that feel like ownership and produce a reward similar to ownership but are not actually shares of stock. Such incentive arrangements should be in writing and clearly understood by all parties.