Invention: Employee Invest / Divest Option
Type: Organizational Convention
Summary: Employees gain ownership in their company as long as they are there and when they leave, the company purchases back the equity over a period of time for redistribution.
Explanation: After employees join and stay at an organization they begin to accrue ownership in the company through shares being awarded at the end of each term. The allotment may be divided based on democratic process or other method. Once they leave, after a grace period, these shares are purchased back by the company for redistribution at market levels. With this convention all current employees are able to gain and increase their ownership in the company, incentivizing performance and efficiency. Former employees will have their investment returned to them, generating real returns on the lasting success they were able to build.
Utility: This convention can be applied to most business types, except perhaps unstable industries with high growth or a contracting market. It incentivizes long term thinking and short term performance to gain additional equity while protecting the equity currently earned so that it grows. Equity continually stays with current stakeholders with little being outside the company, and that which is outside the company, is continually being bought and returned to the company/current employees.
Application: One possible example would be that of an independent coffee house: Owner 1 starts the coffee house with 100% equity of a business saleable for $100,000. He hires 3 employees. Employee 1 works 40 hours/week, employees 2 and 3 20 hours per week. After 5 years, Employee 1 owns 5% and Employees 2 and 3 2%/piece of a company worth $200,000. Owner, who still owns 91% of the company, decides to leave. Employee 1 hires another employee. Over the next 5 years, Employee 1 owns 15% of the company, Employee 2 and 3 owns 5%/piece, employee 3 owns 3% and the owner has sold an additional 19% of a $250,000 stake, which nets him roughly $50,000 in payments and still owns 72% of the company. Employee 2 also leaves. After 1 years, he has sold back 2% of his stake at $5000 and still holds an additional 3% to be bought back in the next 1-2 years.