Nowadays, most business owners outsource managers as representatives who manage their company. This benefits the business a lot, especially when the owners are not qualified enough to operate a system. However, we can not deny the fact that everyone works for their own benefits. That’s to say, no matter how excellent the recruited managers are, they can not perfectly merge the desire of business owners with their benefits. Thus, this has negative impacts on cooperation. How to make the managers engaged with your business? Let’s check the solution drawn by Faro in this post.
In fact, whether managers will act in the interests of stockholders or not depends on two factors. First, how closely are managers goals aligned with stockholders goals? This question relates to the way managers compensated. Second, can managers be replaced if they don't pursue stockholders goals? This issue relates to the control of the firms.
1. Managerial Compensation
To match managers goals closely with stockholders goals, the best way is having appropriate managerial compensation.
Managerial compensation should be tied to financial performance in general and often to share value in particular. For instance, administrators in the big listed company are frequently given the option to buy the stock at a bargain price. The more the company’s stock is worth, the more valuable is this option. In facts, this option is also considered as a way to motivate the administrators to work effectively as well as match the benefits of stockholders and the representative. For example, in 2007, Google announced that it was issuing new stock options to all of its 16,000 employees, thereby giving its workforce a significant stake in its stock price and better-aligning employee and shareholder interests. Many other corporations, large and small, have adopted these similar policies...
Beside that, another effective incentive is job prospect or promotion. “Better performers amongst the team will tend to get promoted”. Then, any managers who are successful in pursuing stockholders’ goals will be suitable candidates for the position and thus be offered higher salaries.
2. Risk of being replaced
As you know, reputation is one of the most important criteria to apply for and get in a job, especially the job relates to management. If you have a dark spot in your reputation, you will almost be unable to be hired. That’s why HR professionals care about candidates’ reputation in management. A person who was fired or replaced in the previous job is easily put in “consideration list”.
In business, stockholders are real owners of a company. Therefore, they can control the firms through the right of selecting the board of directors and replacing the managers who make them disappointed about financial performance. So if managers want to avoid being fired, they will have to try to pursue the stockholders’ goals.
Another issue happens to administrator with poor management is a takeover. That means when a firm shows its potential bankruptcy in the near future, it is easily acquired by another company. This situation is called a takeover or acquisition. Thus, avoiding a takeover by another firm gives management another incentive to act in the stockholders’ interests.
Conclusion, having a good and dedicated executive means your company has growth potential in the future. With consultant teams who have deep insights in many industries, Faro guarantees to offer top qualified candidates that adapt your trending demand.