BUILDING TO LAST: IPO dream is over

BUILDING TO LAST: IPO dream is over - DILEMMA: Market turbulence has killed the prospect of our IPO. Although this isn't a death knell for the business, it is causing a lot of trouble over our incentive schemes. What should we do: re-base the option schem

by PATRICK DUNNE, works with 3i
Last Updated: 31 Aug 2010

DILEMMA: Market turbulence has killed the prospect of our IPO. Although this isn't a death knell for the business, it is causing a lot of trouble over our incentive schemes. What should we do: re-base the option schemes, switch rewards back to mostly income or just wait for the market to get better?

ISSUES: You're not alone. Companies large and small, public and private, face this issue. Recruitment, motivation and retention are easier if your stock is steadily rising or if there is the prospect of a big capital gain through an IPO. Presumably, your main concern is that you may lose your best people. If you've motivated them solely with money, you might.

The first thing to get clear is the position of the business. Pulling the IPO usually means you won't have the capital you thought you would. If you've been building up overheads in anticipation then it's time for a serious review of your company's cashflow and business model. You may need to raise additional capital or shed staff.

Figuring out your relative attractiveness as an employer is important. Think about the non-financial stuff first. Is the work interesting and fun, and is there a happy environment? Are your best people really going to go because all those interesting projects and resources you promised them are about to get chopped? Your competitors may be in the same boat, so staff may not be as mobile as you think.

Get real and think about pay and job security. Pay diversity seems greater than ever these days, making comparisons harder, despite what the remuneration consultants say. Valuing options and share incentives is difficult. You can obviously change the balance of income and capital reward if you have the cash.

Re-basing schemes sounds a convenient and easy way to sort things out. However, any external shareholders may not like your 'heads I win, tails I don't lose' approach. If you are recruiting new people your share schemes must be realistically priced. How will you deal with this?

ACTION

- Don't panic. Work out what the situation really means for people.

- Be open about the problem.

- Be clear and honest about what you are going to do.

- Get out those old-fashioned motivational skills. They're not just good for keeping people, they're great for getting the company through a tough patch.

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