Skin in the game
There are so many truisms… so many corporate nuggets of established wisdom that we just accept as true, aren’t there?
Wanting our employees to act like owners is one of those.
The importance of giving folks skin in the game… the importance of having skin in the game.
The ubiquitousness of the very phrase.
We’ve said it often enough, so it must be true.
But is it?
From an employee’s point of view, skin in the game is, of course, nice to have. It communicates, if nothing else, that you are valued and the organisation wants to retain you. It may also come with some material benefits down the road.
But does it give you influence?
I mean… in a big organisation… big wheels keep on turnin’, baby… and you having a few thousand shares won’t make a difference to the company’s direction, its share price or indeed your performance. Not really. You won’t think as a shareholder at 8pm when you really need to get something across to your boss for tomorrow’s meeting and you are hungry and this is the third night running that you didn’t help put the kids to bed. You will think as a Jim and do the best you can to do good work but also log off already.
“Yeah, well,” I can hear you mumbling. “Equity in a big organisation is nice but of course it’s about belonging, not control. It’s about incentives, not commitment. But in a start-up, it’s different.”
Is it though?
In a small organisation, you are definitely closer to the centres of power, no matter who you are, by virtue of being part of a smaller group. And of course in a younger organisation less is set in stone. More is up for debate. Your voice should be able to carry… and carry weight proportionate to the quality of your argument.
And of course that happens.
Though often enough, in a founder-led business, there are God complexes to work around… and although fewer people are in the room, the number of folks around the table doesn’t include everyone, even in the smallest companies…
Plus… might may not always be right, but shareholding power tends to be. So your 1% may be a substantially larger fraction of the whole than your friend Jim holds with his few thousand shares of Big Corporate Stock… but neither of you get a voting card when the big decisions are made.
Plus… don’t underestimate how early inertia sets in, even in small organisations.
In fact, the fact that people develop habits and structural foibles quickly is why founders give equity.
The realisation that inertia sets in dangerously early is why founders give equity… in the hope that employees will be incentivised to fight it wherever it appears.
You know what ‘it’ is…
The tendency to cut corners, be short-termist and opportunistic in a solution design or engage in petty politics isn’t unique to big organisations.
So if I give you equity, surely you will act like a founder. You’ll do what needs doing rather than spend the day sending email missives. (My old boss used to call them rockets… the emails that were designed to start a chain reaction of unnecessary work for other people while making her look like a thoughtful corporate citizen. She was honest about it at least. Intentional and open. “Are you ready to go?” I would say… “Give me a second to finish my rocket,” she would reply.)
So you give equity to forestall the rockets.
Surely you wouldn’t do that rocket thing to your own business though, right?
Turns out… yeah, some people do. I have worked for at least two of them.
Turns out, also, that a little bit of a stake in the outcome only creates commitment if the strategy is believable and inspiring and constantly reinforced.
And let’s take a moment of silence here for every self-congratulatory town hall we have all lived through and leave it at that.
Skin in the game doesn’t actually give influence over the outcomes. Not really. And yes, it will create loyalty in the organisation, but that loyalty is situational not existential. What I mean is… I won’t stay forever because this business is 1% mine… I will stay for another year because it looks like we are approaching a liquidity event.
Is that what you had in mind, dear founder?
No, I didn’t think so.
Skin in the game is such a terrible phrase as well. It sort of insinuates pain is possible, maybe even imminent in the case of defeat in said game.
Am I the only one getting these mental images?
But still, the point remains… employers want employees to care like the business were their own… and employees want to feel valued and wanted. So giving equity is useful. Don’t stop.
But also don’t stop there.
It is not enough for the outcomes we collectively and actively crave.
The truth is that the potential multiple of a share price I don’t control is much more nebulous than the people I work alongside or the things I spend my time on. The quality of leadership I encounter in hallways and Zoom calls day in, day out. The hollow din of the culture statements when you bump up against them in the course of your working life.
If you want your employees to care to preserve the business and make the best possible decisions, feeling like they own it is a small part. Feeling like they value ‘living here’ is a huge part. So give your teams something worth protecting.
We spend way too much time at work. But if that workplace is fair and just and purpose-driven, people will go out of their way to protect it and do good by it. No matter who owns it.
So yes, of course give us equity.
But also remember that how you show up each day as a leader, a founder, a CEO – no matter the size of the company – is visible to all.
The fights you side-step. The blunders you don’t own up to. The people you let get away with all the things you say you don’t tolerate in your culture statement.
So yeah, put like that, whether the company is big or small, giving out equity is easier altogether than consistent thoughtful leadership.
But if it’s real long-term commitment you are after, then maybe stop thinking of your teams’ working lives as a game and start seeing them in terms of the exchange you are proposing: what they give you, what they get from you (material and otherwise) and the opportunity cost of not moving on. For them, not for you.
You are wedded to this business.
I get it.
It’s yours after all. Or you were chosen to run it and you have the chair at the pointy end of the pyramid. You are not going anywhere. But your team are not invested the same way. And crumbs off your cap table may not be the way to get them to feel that this business is where they are pitching their proverbial tent.
Offering a fair exchange, all told, material and otherwise, in your people’s pursuit of meaningful balanced lives, well. That may be worth more – right here, right now, and every day that ends in a ‘y’ – than skin in the proverbial game.
And before you say, “Ah, well, yeah, but who can put a price on that?” We can.
Each of us. We can put a price on that as easily as we can work out that 1% of zero is so much air. And an organisation that lives by its values is worth more than gold.
Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.
She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem.
Leda is also a published author – her first book, Bankers Like Us: Dispatches from an Industry in Transition, is available to order here.
All opinions are her own. You can’t have them – but you are welcome to debate and comment!