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Smart Business Article "How can owners incentivize without giving equity" by Frederic J. Marx

Smart Business

Frederic J. Marx


Incentivizing employees may be one of the oldest conundrums of business strategy. Especially for closely held, owner-managed and family-owned businesses, there has rarely been a simple path to having high-level employees truly embrace increasing the value of the enterprise.

The trick is aligning the interests of the ownership and those of teams that are key to growth — without assigning equity that triggers the obligations of a legal partnership. One of the great misinterpretations among owners is that they create a clean system by presenting non-voting stock or equity on the condition of a buy back if the employee leaves. But as soon as the stock is granted, the majority owner owes them fiduciary duties.

There are, however, legal devices that have been developed to help owners create a more unified environment while maintaining 100 percent control. While there are nuances depending on where the company is incorporated, here are a few alternatives to equity ownership that will still inspire a connection to the organization’s overall success.

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