---
title: "Distributors Want to Play Equity Incentives? Understand This Before You Act"
description: "Equity incentives are being touted as a powerful management tool, but they often fail, especially for small business owners. This article outlines the key factors that determine whether equity incentives can work, such as employee confidence in the company's future, recognition of the company, competitive advantages, and trust in the boss."
author: "潘文富"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-08-05"
language: "en"
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# Distributors Want to Play Equity Incentives? Understand This Before You Act

> Equity incentives are being touted as a powerful management tool, but they often fail, especially for small business owners. This article outlines the key factors that determine whether equity incentives can work, such as employee confidence in the company's future, recognition of the company, competitive advantages, and trust in the boss.

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Private Enterprise Internal Management Research/Pan Wenfu
A big-nosed celebrity once said: "Chinese people need to be managed." Okay, let's manage them. The purpose of management is simple: to make employees obedient, work hard, be stable and loyal, and create more value for the company. Of course, you can't manage with empty hands; you need corresponding management tools.
Now, there is a wide variety of management tools, ranging from high to low quality, and bosses can easily choose among them. Recently, the management tool of shareholding or equity incentives has begun to be sought after by many bosses. According to what this management tool claims, it can stabilize employees, mobilize their work enthusiasm, enhance their sense of responsibility, improve execution, and make them work wholeheartedly. In short, it is all good and beats other management tools. For example, a successful e-commerce company relied on shareholding to build a team, and a famous coffee company used shareholding to attract and stabilize its workforce, and so on.
Is it really that magical?
Objectively speaking, all management tools have no distinction between advanced and backward; the one that fits is the best. So, is shareholding or equity incentives really suitable for all bosses? Of course, when shareholding is first introduced, employees' attitudes are relatively positive and optimistic, but how long can it last? Based on my own practical experience, this shareholding approach has very few success cases and more failures, but people just don't talk about it. It can even be said that most bosses cannot afford shareholding.
**First, among all bosses, the vast majority are small bosses. I firmly believe that small bosses cannot afford shareholding!**
Because whether a management tool can work depends on whether there is sufficient compatibility between the tool and the environment and the people using it. In small companies, or with small bosses, there is a severe lack of many factors that match shareholding. This makes it difficult for shareholding to have a sustained effect on employees. So, from the employee's perspective, what supporting factors does shareholding need?
1. **Future development space**
Shareholding is continuous, which requires employees to have sufficient confidence in the company's future development. This involves the future development trend and space of the industry, which directly determines whether there is still something to play for. If it is a sunset industry, do you think employees will have the confidence to keep working? The company and business rely on the overall social background and industry space. Has the boss clearly, objectively, and with evidence explained this to employees?
2. **Recognition of the company**
To make employees firmly believe in growing and developing with the company, and to tie employees and the company together, shareholding is just a means. More importantly, whether employees recognize the company, and this recognition includes:
- Whether the company has a sound and clear development plan
- Whether the company's current operating system is sound, smooth, and orderly
- Whether the company's current management system is sound and reasonable
- Whether there are many unhealthy factors within the company
- Whether the company's technical accumulation is sufficient
- Whether the company has corresponding innovation and R&D mechanisms
- Whether the company has sufficient human resource reserves
3. **The company's competitive advantages**
The company's sense of security and development momentum are largely influenced by its industry position and competitors. So, what is the company's current industry ranking? Does it have a leading advantage? How big is the gap with competitors? Does it have clear differentiated advantages? Is it confident to surpass and continuously lead competitors?
4. **Views on the boss**
The company belongs to the boss, and no matter how much shareholding is implemented, this fact cannot be changed. Employees' confidence in the company is largely confidence in the boss. So, can you, as the boss, make employees feel at ease? Can you make employees confident to continue working with you? What factors about the boss will affect employees' views of you?
- The boss's personal credibility, i.e., whether he keeps his word
- The boss's intelligence
- Whether the boss's personal business and management abilities, and even work style, are at the level of being a teacher to employees
- The boss's personal breadth of mind and boldness, i.e., tolerance, or whether he can afford to lose
- Whether the boss's interpersonal skills are sufficient
- The quality and stability of the boss's circle of friends, and his status in that circle
- The boss's self-discipline and self-execution, whether he can lead by example, whether he has sufficient self-control, and whether he has ever lost his composure
- The boss's thinking habits, whether positive or negative, whether he actively finds solutions or passively complains when encountering problems
- Whether the boss's family is stable, and whether family problems might arise later, affecting the company's operations
In a word, employees' actual evaluation of you (not what they say openly) intuitively determines whether they have confidence to work with you and is a direct basis for assessing whether the company can develop.
5. **Self-assessment**
Maybe the company is good, and the boss is good, but do employees have confidence in themselves? What is their real ability level? Can they keep up with the company's development? This is another issue, involving several factors:
- Whether there are external and internal human resource reserve mechanisms, and whether their work is replaceable. If the company has no personnel reserve and employees are not replaceable, they will naturally become inflated. Perhaps shareholding cannot satisfy them either.
- Whether the company's job definitions for employees are clear and reasonable, whether the professional skills required for each position are quantified and structured, and whether employees' actual mastery of professional skills is transparent.
- Whether the company has the ability to provide continuous technical coaching to employees, helping them continuously improve their professional skills.
- Whether the company's development, the improvement of employees' professional skills, and the increase in employees' income can be ensured to match.
6. **Income growth points**
Giving employees shareholding is essentially finding a reason to give them more money. So, where does this extra money come from? Is it from cutting the boss's profits? Or from employees increasing their workload? Or from new projects or management cost control? Shouldn't this be clearly explained to employees? Otherwise, employees will feel uneasy. Obviously, if it's cutting the boss's profits, it won't last long. If it's increasing workload, there's no difference whether shareholding is implemented or not; in the end, it's still the sheep paying for the wool. It's best to have new projects or new profit points as the source of share dividends. Of course, the boss needs to explain this clearly.
No matter how good a diamond is, it needs a platinum setting. **Shareholding is just a management tool. Whether it can be introduced and used depends on whether the relevant supporting factors are in place and match.** Otherwise, the introduction of shareholding may be easy to start but hard to finish, with a lively opening but requiring more money later to clean up the mess.
**Finally, a few brief words:**
1. Small companies and small bosses, don't play this game.
2. If the management and operation system is not clear, don't play.
3. If the boss has a poor reputation among employees, don't play either.
The author is a private business owner, having managed a family-owned distribution company for many years, during which he also served as a business manager and trainer in several manufacturing companies. His research focuses on internal management of small and medium-sized private enterprises, with main topics including personnel management, cost control, management backend setup, and the integration of retired military personnel into private enterprises. He has continuously broken down over 400 topics related to internal management of private enterprises and keeps updating his material collection and solutions.


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