Last year I was coaching a newly acquired client of mine. As the sole owner of a small but very successful agency, she was working with me on various strategies to capitalise on her recent growth.
She has a team of six relatively successful consultants. Three of those have been employed long term with her. One of those consultants was easily the biggest biller of the three, although this success has only become consistent in the past 18 months.
Mindful of the need to, in some way, lock in her senior people, the question my client asked me was ‘Should I offer my senior consultants an opportunity to purchase equity in the business?'.
This was a tough question and not one that I felt was mine to provide an answer to, but, instead to suggest to her the types of things she would do well to consider in making this decision, such as:
- How much equity to offer?
- At what price?
- Is each senior consultant offered the same amount of equity?
- Does the equity automatically entitle each equity holder to Director status (with voting rights or without voting rights)?
- Can they purchase more equity at a later point?
- What happens to the equity if they resign?
- What are the restrictions, if any, as to whom and when, the equity (in full or in part) can be sold?
Beyond these questions there is the fundamental question as to whether any of the senior consultants in question actually deserve the opportunity to purchase equity.
As I pointed out to my client, billings are just one piece in the puzzle when you are considering the ‘worthiness' of an offer of equity to any person. Billings are a headline statistic, that although important, is just one of a number of factors that you should consider in the offer of equity.
Here are ten factors that will (or should) provide a broader and more rounded perspective on any employee's true worth are the following:
- Billings history (How consistent have they been over the longer term?)
- New business development (Do they bring in new clients or mainly service existing clients?)
- Client development (Once they start working with a client company, do they develop more relationships within that company?)
- Referrals to other consultants (Do they consistently bring in business, or open new doors, for other consultants in the company?)
- Use and development of agency intellectual property (Do they actively and consistently use, develop or help develop, the tools that build the company's client, candidate and employee value proposition?)
- Development of agency brand and reputation (Do they regularly attend networking events, write blogs, provide valuable updates on Twitter or LinkedIn and/or go the extra mile at client and candidate functions?)
- Development of talent within the company (Do they actively and consistently play an important role in mentoring, training and otherwise developing other employees or do they just focus on their own billings?)
- Respect for all employees, regardless of the employee's job title, tenure or seniority (Have they earned the respect of other employees or do they simply demand/expect that respect?)
- Leadership behavior (Do they consistently display the behavior, especially under pressure, that you would like to see replicated throughout the company or do they only display this behavior when they ‘feel like it' or want something from somebody?)
- The journey ahead (Do they see attaining equity as an end unto itself or is acquiring equity just the start of a new, higher level of commitment to the company where they are eager to share the responsibility of growing the company into the future and embracing, not avoiding, the challenges that this growth will inevitably bring?)
The first nine criteria are ones that you will judge based on past behaviour. This should not be a difficult task.
The final criteria is the toughest one to consider because you are speculating about future behaviour. No doubt you will have some evidence for that person's likely behaviour given your consideration of the previous nine factors, but ultimately you have no way of knowing for sure.
Is your big biller really valuable enough for a slice of your equity pie?
I suspect perhaps not quite as valuable as they think they are.