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  • Writer's pictureTim

Great Tools Used Poorly

Even the most appealing tools to build your people and organization can be used, well, just badly.

For an example, I am going to drop a little “finance” on you here so stay with me.  It will illustrate the point.

Employee Share programs look wonderful.  They can be a great benefit that help motivate people as they share in the growth of the company.  Nothing wrong with a little “skin” in the game.

But what happens when this benefit gets pushed a little too much?  Is the share price the best reflection of company growth?

Let me show you what can happen with this incentive.

Let’s say the market starts to drop in general (and the specific company’s stock along with it).  Stock Market drops are normal, nothing unusual, but when so much of your employee incentive is tied to the stock what can you see happen?  Maybe management panics a bit.  Maybe they decide to borrow money to initiate a stock buyback.

Nothing wrong with management buying their own stock if they see it as undervalued but is that what they are doing?  Maybe they are just initiating a buyback to support the stock price and to keep employees happy.

So what’s the harm?  Share buybacks do return capital to shareholders but it also takes capital away from investment in future projects that might grow the company (hire more people…hmmm).

You can also be a little bit cynical when now so much of CEO pay is based upon stock incentives.  Sure they might want to support the price but not to build the company to build their own wealth.

The moral is that many seemingly wonderful incentives can begin to work almost directly against the true positive goals of the company.  It isn’t enough to simply have any incentive, it must be properly used.

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