Involving employees in the company is wise for companies. But the supposedly lucky ones should be careful. Especially with start-ups, shares as a wage substitute are a high-risk bet, which are often used to conceal precarious employment relationships.
The payment & banking scene is undoubtedly never boring. Not a month goes by without new products, banks, fintechs and payment solutions being launched. But who really needs all this and do you have to find all this good? Our author Nils Wischmeyerilluminates in his column “Nils nagging” from now on monthly a product, topic or just the “last hot shit”. After all, there is (almost) always something to complain about.
The plans of Olaf Scholz seldom lack beautiful words and promises. In an interview with the FAZ he recently said how important a “flourishing start-up scene” is, if only because of the “innovative capacity of the economy”. He let it be known that “young companies should really get off to a flying start” and linked this to a promise: Employee participation should become easier and workers should benefit from the exit or the IPO – and then invest again;
In this discussion, the financial industry prefers to focus on Paypal referred to. The pay service, which is the so-called Paypal Mafia founders or employees who were rich and famous after the billion-dollar exit – and in turn pumped their money into the Silicon Valley ecosystem A dream come true for every entrepreneur, founder and politician
Participation instead of salary: this is a major risk for employees
The federal government wants that too, and the plan is noble for now. The tax-free allowance for employee shares is to be increased and the shares are only to be taxed when they also become money. In addition, to create the Paypal effect, they are to remain tax-free when the money is in turn invested in the ecosystem. With this, the politicians are also responding to the wishes of the start-up association who would like to see more employee participation in order to make Germany more attractive as a business location.
But employees should be careful at this point: Because founders could use the participation to hide the rather precarious working conditions and low salaries for a lot of time and nerves. Although this is of great benefit to the founders, it is statistically rather a loss for the employees;
Don’t get the wrong idea: For companies the instrument “employee participation” is extremely useful. It motivates the employees, they work harder and may even add an extra hour or two to their own financial success. It is also lucrative for founders, because they can bind employees more strongly and at the same time create loyalty. For employees in large companies it also makes sense because the probability that Bayer, BASF or Adidas will go bankrupt overnight is low, the risk is small;
Only one in ten startups survive. That’s why: Open your eyes.
But the situation is completely different for start-ups. There they always like to tell the story of Paypal. What many forget: Paypal is a company of maybe 10 million that made it this far. On average, one out of ten start-ups survive the first three years, which is only the dream of a single founder and his few chosen employees that their shares might one day become money. The rest comes away empty-handed;
Employees in start-ups should not be under any illusion: If founders offer them shares instead of money, they do not necessarily do so to enable the fortunate to have future wealth, but possibly rather to cover up the poor pay. “We pay miserably, but one day you will be rich thanks to the shares”, is the promise. And the reality? It’s different.
If only one out of ten start-ups survives, the employees from nine out of ten start-ups will lack a nice sum in their accounts after a few years. All those overtime hours, extra work and the exuberant wage increase, because you’re there with more “spirit”? Then they are worth nothing more;
An exit or an IPO is not an automatism
Or maybe it is even all employees who go away empty handed. Because an exit or an IPO is by no means an automatic process, even if this story is often told in this way. And even in a stroke of luck, the question remains: Is my share really worth so much that I can accept a previous loss of income? For founders, employee participation is almost always attractive, because they either already receive a good salary beforehand or they collect a lot of money when the company is sold for employees, on the other hand, the profit is very limited, but the loss weighs heavily
Participation can be a sensitive instrument if it is negotiated independently of salary.
Of course, one should not assume that every founder thinks and acts in this way. Participations can also be a sensitive instrument if they are negotiated independently of salary. However, if this is not the case or only to a limited extent, the instrument creates the incentive to drive employees into self-exploitation in the hope of future wealth. And that is doubly alarming. Because if “shares instead of coal” becomes established in the industry – also because it becomes easier – this may ultimately bring disadvantages for those who would like to have a salary in the here and now. They could be passed over because someone else is working for shares instead of money – curse the one who takes the first deal;