You do it as a partnership where new employees buy into the company when they get hired.
Practically speaking, this does not work in most businesses.
But maybe you have an idea that I haven’t seen.
What would some numbers look like for a company and what would the buy in be for a new employee?
Where do these shares come from? Do you dilute the pool? Will people who are no longer part of the company (but are still partial owners) want their ownership pool diluted? If so, how fast can you grow before they start saying no?
> The investment portion would be separate from the base package as part of adding the investor-employee to the company.
Where does that money come from? Employee stock ownership plans where money is taken from their salary?
How much has to be invested before they feel like owners?
And again, where do these shares come from? Is there a market? Is the share pool diluted? If dilution occurs, what’s the mechanism for this?
This is obviously decided by the employees. One option is that the company reserves a pool of shares for hiring, another is to dilute. Again voted and agreed on by the people that work there.
> The investment portion… > Where does that money come from?
“The investment portion” is the portion of the package you’re giving your investor in exchange for the money being invested. That part of the package could include: more shares, a later lump sum payment, etc.
I imagine the share dilution or split or whatever would be tied the continued success of the business, requiring everyone to understand how adding a person would financially change their risk/ownership pool.
The reality that I’ve seen is that it rarely works out like you are suggesting.
Real examples that I’ve seen twice in detail is that senior management (and later retired management) ends up with a lot of shares. Upper management prefers disbursements/dividends, while lower-paid folks prefer pay increases. Sometimes neither of these are optimal — better to re-invest.
The senior management and retirees do everything that they can to minimize share dilution, and they are very aware of where their share of voting shares stands versus the labor shares, and the management is much more savvy about this knowledge and process.
Bitterness on both sides ensues, and the company turns to shit via in-fighting.
As for getting new folks to invest their own money into shares, there has to be a very clear path for ROI for these folks, as often there is no dynamic market for shares.
Other examples I’ve heard stories about (but haven’t seen numbers) have similar tensions.
Maybe I’m biased, because I mostly hear about failed employee buyouts. That said, the number of success stories I’ve heard of are few — bobs red mill (still newish) and Publix… I’m sure there are a few more.
When creating an employee owned company these are great things to consider when drafting the agreement but I didn’t read anything from your anecdotes that suggests it wouldn’t be a successful model.
My comment was never about the employee base package requiring investment from the hired employee. I was commenting on offering the base and an additional package for bringing on an investor employee.
* You can only "invest" in one company at a time this way, so the risk profile is much worse for you than for a VC with a lot of different portfolio companies.
* It's rare for a 100-person company to be valuable enough that a 1% equity stake is competitive with the levels.fyi payscale.