Striking the right balance between Stake and Soul is the defining challenge of every employee‑owned business.
In this week’s EO Know How, Barry explores how that balance is never static, but continuously shaped by the systems that govern financial reward (Stake) and the culture that safeguards voice, purpose and long‑term stewardship (Soul).
By integrating employee influence into financial decisions, ensuring rewards reinforce an owner‑mindset, and using governance to protect both principles, the blog outlines how EO businesses can create a model where every employee owner feels both empowered and invested in the organisation’s success.
Sneak Peek: What’s Inside This Week’s EO Know How
- Discover why profit‑share decisions must be influenced by employee voice
- Learn how reward structures can strengthen an owner‑mindset
- Explore how strong governance safeguards both Stake and Soul
- See how mission‑lock protects long‑term purpose
Striking the Balance: Stake and Soul Alignment
The balance between Stake and Soul is achieved through integration, not separation.
1. Connecting Soul to Stake – Integrate Influence into Financial Decisions
The biggest failure in many employee-owned companies is letting the finance team decide the profit split behind closed doors. To strike the balance, the mechanism for distributing the ‘Stake’ must be influenced by the ‘Soul’.
The people who decide the annual profit allocation must include individuals appointed to represent the wider employee owner perspective. This ensures that financial decisions are viewed not just through a fiduciary lens, but also as as a cultural one.
The annual decision on how much profit goes to pay off the vendor debt, how much is allocated to reserves, and the bonus allocation must be explained clearly by the CFO or CEO to the Trust Board before it’s ratified. This doesn’t mean employees vote on the budget, but they do appreciate and understand the rationale and trade-offs.
Example: “We are retaining 30% of the profits in the business this year and slightly reducing the employee owner profit share and vendor debt repayment, because the business has highlighted the need for a new IT system to improve efficiency and we collectively believe this to be an important and critical investment in the future” (Linking investment to employee feedback.)
2. Connecting Stake to Soul – Tie the Stake to Owner-Mindset
The financial reward must reinforce the culture of shared accountability, not just entitlement.
- The importance of communicating the ‘Why’. Never let the EOT bonus be treated as an expected 13th-month salary payment. When the bonus is paid, the communication must explicitly link the size of the payment to collective measurable achievements (e.g., The team’s overall success in achieving X directly led to a higher profit margin and this £… payment.)
- While some employee-owned businesses use a salary-pro-rata split, often a more equal or capped allocation model is used. This reinforces the ‘Soul’ – the belief that everyone’s effort contributes equally to the business success – even if their pay rates differ. This counteracts the potential distortion of the base remuneration structure.
3. Protecting the Contract – Use Governance to Protect Both
The EOT structure itself must be the guardian of both principles.
EOT Trustees act as the ‘Balance Keeper’. The Trustee Board’s primary role is of course to ensure the company is run in the long-term best interests of the beneficiaries (The employee owners). This means they must actively ensure two things.
- The ‘Stake’ is preserved (e.g., ensuring the board is not over-leveraging debt).
- The ‘Soul’ is maintained (e.g., ensuring employee voice mechanisms are active and effective, and the company culture reflects ownership).
The ‘Mission Lock’. The Trust Deed often locks in a core purpose. This guarantees that even if future leadership changes, the company cannot legally abandon its ‘Soul’ in pursuit of pure financial ‘Stake’.
The balance is struck when every employee owner feels:
“Because I have a financial ‘Stake’, I have a voice (Soul), and because I have a voice, the financial decisions reflect my long-term interest (Stake).”
You’ll be able to listen to the Stake & Soul podcast on YouTube or your favourite podcast streaming platform.
Reach out today to start the conversation with Barry Horner.
Who We Are
We’re Paradigm Norton – a financial planning firm that understands both sides of the employee ownership table.
We’ve supported founders navigating the handover. We’ve helped new EO businesses build sustainable cash flow models. And we’ve lived the journey ourselves, since becoming employee-owned in 2019.
That’s why we approach deferred consideration with two priorities: protecting the vendor’s future and empowering the employee-owned business to thrive.