Value-Based Financial Ownership is a new approach to rewarding the value that groups of people create over time.
Working in creative industries, both for-profit and non-profit, people are generally familiar with a two-part financial ownership model. There are the 'owners,' who receive or control all the financial results of the organization. There are the 'workers,' who are paid only for the time and expertise they contribute but do not have any rights to receive any part of the results (net income, profits, royalties, etc.) generated by the organization.
Sometimes, individual people fill both roles (especially in employee-owned models). Sometimes, the 'owners' may not personally financially benefit (such as with non-profit boards). Common models continue to be built on the separation between those with financial rights or control based on their position and those who do not have financial rights or control despite their active contributions.
Building from a different perspective - that organizations are tools that facilitate the ability for people to create value together - we have developed a different model at Creative Evolutions called Value-Based Financial Ownership.
What does this mean?
First, Equitable Pay for Direct Work
When the work of a team generates revenue, those revenues are equitably shared with all team members.
Higher revenue means higher pay in an ongoing, immediate way. Greater contribution means greater reward. The organization's value and assets should also grow when revenues grow. However, connecting financial rewards to value creation happens immediately at the front and back ends.
Beginning with this principle may be harder to implement than it seems! Operating in this model means continually questioning whether people are being appropriately compensated for the value they add to the team. For example, read here about a way to approach compensation for candidates and referrals in hiring processes.
Value Creation Matched with Financial Reward
Under this model, anyone who contributes to the organization's collective work in any amount is assigned financial stakes in the organization proportionate to the contributions made by other individuals.
Over time, the number of individuals who hold these Stakes of Financial Interest ("SFI's") will grow. Still, everyone who contributed will be permanently acknowledged as part of the organization's story and with some rights to any capital distributions. These capital distributions include dividends, sales, payouts, bonuses - anything beyond direct pay for labor or pay for assets that are day-to-day activity.
Authority and Responsibility Separated from Financial Rights,
and Balanced with Service
Value-based financial ownership separates control and responsibility from financial rights.
This model is not one where everyone who contributes value receives 'ownership shares' in the legal equity ownership sense. It can be onerous and over-burdensome to require anyone who contributes to control the organization's decisions and future. Issuing legal ownership shares can also generate tax burdens on individuals, which can be problematic for individuals without significant liquid assets.
The explicit responsibility of those who hold authority is to ensure that everyone who participates or contributes to the group can easily describe how they benefit from involvement with the organization. Having a permanent right to a financial payout (however large or small) through SFI's is a very clear way to demonstrate to each person that they are part of the journey and are essential to all that follows. The individuals responsible for decision-making also operate under the same rules as anyone else who creates value, receiving SFI's on a rolling basis equitably allotted based on the value they contribute.
Self-Determination and Rights to Intellectual Property
Regardless of engagement structures, value-based financial ownership also means a commitment to an individual's rights to the ideas they create.
Organizations bring together individuals in various structures: some are full-time employees, some are part-time employees, some are project contractors, and some are advisors or volunteers. In respect of the value provided by the team working together, the organization can have the right to promote or utilize ideas, concepts, and materials, but always with attribution to the individual people who were involved in the creation, and the individual people will have the right to also continue to utilize, promote, and continue to develop anything they created with the company.
As long as incentives are aligned for the individuals and the organization to collaborate on building and promoting ideas, then ongoing collaboration can be mutually beneficial. However, individuals are not required to sign over the significant value they have created solely because an organization paid them some amount up front in a fee or salary.
In September 2022, Creative Evolutions was founded and immediately began using this ownership model.
The LLC is registered to two Managing Collaborators who hold authority and responsibility but whose financial rights operate through SFI's, the same as anyone else who creates value in the organization.
By September 2023, 20 individuals had created value for Creative Evolutions activities and had been issued SFI's under formal agreements for their efforts. These ranged from the Managing Collaborators (working full time) to part-time regular partners to individuals who did a single day's work that contributed directly to the organization's forward progress. By September 2023, the 20 individuals collectively held 3,020 stakes. Individuals ranged from having as few as three stakes to as many as 1,000.
With the organization's first anniversary, the Managing Collaborators issued a cash bonus proportionately distributed based on the number of outstanding stakes. Even individuals who had only made a small contribution and had not been actively engaged with Creative Evolutions in months still received payments, reflecting their part of the overall value generated together since the founding. The smallest payment for that collective bonus began at $20, and ranged up to thousands of dollars for very active collaborators.
As of the end of December 2023, Creative Evolutions has issued 3,768 stakes, a number which continues to grow monthly.
Additional articles will be released here to explore facets of Value-Based Financial Ownership, including answering questions such as:
How do the balance of financial stakes shift over time as people come in and out of the organization?
How does accountability work for which assets are selected to be distributed to the owners of SFI's?
How can this model be applied to non-profits?
What are the long-term ramifications of an organization operating in this model over decades?
How does this ownership model relate to being a black, BIPOC or female-identifying owned business?
What are the impacts on an organization's ecosystem and networks from following this model?
How does this model operate with people who are fired or who depart from the team on bad terms?
What other questions do you have about Value-Based Financial Ownership and how this way of doing business works? Reach out to Creative Evolutions at any time, and we're happy to elaborate or help you explore utilizing this model for your own team.
Read More: "Centering Humanity in Executive Search" by Calida Jones
Image Credit: Canva
Work Cited: "Types of employee ownership," Project Equity