A Wolf in Options Clothing: A BrandSafway Transition Discussion
An important part of making the BrandSafway merger successful will be their ability to retain key employees. One of the ways that BrandSafway might keep employees is by giving them options. Options can be traded in for stock at a later date, and with the possibility of BrandSafway going public at some point in the future, these can be valuable gives. Options are often used to make employees feel like owners and drive them to go the extra mile to generate extraordinary performance for the company. When used in this fashion, they create a win-win. The company wins because the employee is driven to perform at a higher level and the employee wins by sharing in the value his/her extra effort helps to create.
What could possibly be wrong with this?
Unlike the situation described above, where a company is granting options to incentivize extra effort and offering to share in the results generated, there are also other times when companies require that the employee receiving the option provide something else for the benefit of the company. In the case of BrandSafway, my guess is that they may require employees to sign a non-compete. One could argue that this is only fair. BrandSafway is offering a financial incentive in exchange for loyalty – that’s a great deal, right? I think the real answer is, maybe.
Let’s think about it this way. With all the moving parts that are going on with the BrandSafway merger, BrandSafway employees could be asked to grant their loyalty (by giving a pledge that they won’t compete) without really knowing all the facts of whether BrandSafway is the place they will want to work. In the event that employment terms change in the coming months and employees don’t like the new structure or compensation, they have effectively bargained away an important piece of their leverage, the ability to take the relationships they have built and the experienced they have gained and work for another provider. In this case, the options are a powerful tool to secure the employee, and something that appeared to be free (the options) just became very expensive in terms of forfeiting the employee’s freedom.
In some cases, taking options in return for a non-compete is just fine. Most companies are not in the middle of a complete transformation, and you, as a valued employee, probably have a sense of what the company is all about and what your compensation plan is going to look like for the next couple of years. For employees of BrandSafway, this would not be the case.
As you may recall, in an earlier blog post, I posed the question, “Brand / Safway – How will they Compensate the Troops?” In that post, I described the Safway compensation system that many believe formed the foundation allowing Safway to recruit many of the finest managers in the industry. Under this system, individuals could make impressive amounts, which were tied directly to the results generated by their branch or region. This system was the ultimate win-win: the employee was very well compensated, but the company got a much larger percentage of the superior performance. While it is not clear how this issue will be solved, what would happen if BrandSafway drastically changes this compensation system or other important employment terms?
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Maybe this won’t happen. Maybe this is all conjecture, but I have seen companies secure non-competes before all the terms of employment are fully known. Maybe it would be more fair that the non-competes are null and void if the terms of employment are materially changed. After all, if the employer (BrandSafway) has no intention of doing this, this should be something they could readily agree to. And what happens if they balk at such a request, then maybe the employee should look and see if those options are showing their wolf hair.