The decision to offer equity compensation plans is just as personal as your exit plan. However, this benefit is often shrouded in misconceptions, preventing landscape company owners from giving it their full consideration.
Fear of Losing Control
Often, the word equity is confused with ownership. Many owners tend to be reluctant to even consider equity compensation plans, believing they will lose entire control of their business.
“It’s just basically irrational fear of something I don’t understand and know, so therefore I’m just going to use what makes me the most terrified, which is giving up control,” says Byron McFarland, founding principal of The McFarland Group, which specializes in business succession and equity compensation planning.
McFarland explains that, in actuality, equity compensation plans are a pool of value you set aside for your senior leadership team.
“Business owners have so many mechanisms to keep them from ever losing control,” McFarland says. “Voting stock, non-voting stock, preferential rights and agreements. There are all sorts of mechanisms. In all the plans that we’ve done (we’ve done hundreds) no one has accidentally just lost control of their company.”
It all comes down to being intentional about how you structure your equity compensation plan. Paul Fraynd, co-owner of Sun Valley Landscaping, based in Omaha, Nebraska, says with their plan he still holds majority ownership and decision-making power.
“In our case, the employee’s equity is minority interest, and we set it up with specific provisions: for example, voting based on ownership percentage,” Fraynd says. “We agreed that certain big decisions remain my call or require my approval. At the same time, I involve them in decision-making out of respect and practicality, but not because I’m forced to by their ownership percentage.”
J.T. Price, CEO of Landscape Workshop, based in Birmingham, Alabama, says losing control isn’t a problem for them as they generally issue non-voting shares.
“They have the same say that anyone in their role would have,” Price says. “Being a partner in Landscape Workshop is a big honor but we’re going to make key strategic decisions at the board level, not by putting it to a vote of equity holders.”
Ryan Markewich, owner of Creative Roots Landscaping, based in British Columbia, Canada, says they have a culture of consensus-based decision-making so control hasn’t been an issue.
Fraynd says the key is to get all of this in writing in the operating agreement.
“We laid out who can decide what, and that clarity keeps us all comfortable,” Fraynd says. “In short, providing equity to a key employee doesn’t have to mean losing control. If done thoughtfully, you retain final say on the company’s direction. In fact, our arrangement allows me to maintain control while still reaping the benefits of having engaged co-owners on the team.”
Concerns Over Ability to Exit
Another misunderstanding is the belief that providing equity shares will impact owners’ ability to exit the business eventually.
Markewich has already effectively moved from an active role in the business. He says the ownership group and their engaged employees are at the helm now.
“The ongoing conversations about business, transparency, and alignment with the team have made it easy for me to step away, knowing that the company is in good hands,” Markewich says.
Seneca Hull, president of Franz Witte Landscape Contracting, Inc., based in Nampa, Idaho, says sharing equity allows her to know that she will have a market for her stock someday, and it will be people who want what she wants for Franz Witte’s future.
Fraynd says sharing equity only increases the value of the business.
“I would rather sell a much larger business with a little less ownership percentage than a small one I own 100% of,” Fraynd says. “Not to mention, this model drives business value. The more leaders we have in the business and the less the business is dependent on one owner to do everything, the more valuable it is. Those with equity could participate in an equity roll or be around for a management transition and new round of incentives.”
Price says equity shares allow them to build a deeper bench of talented people who can step up when senior leaders retire.
“I personally love my job and hope to stay in it a long time, but having equity ownership allows us to build and retain folks who could step up when the time comes,” Price says.
