The differences in the sources of employees for Vivid Sky as it developed
During the development stages of the skybox, there were three different waves of employees, and they all had different skills and experience; “the first was the founder Tim Hayden, who was a tech savvy” (Wellner, 2006) meaning he was proficient in the use of the general technology especially in computers. He thus brought together the first team of programmers where they shared the same passion as Tim Hayden in sports; they created the first overall design got it working and left a working model that was presentable to investors. The first wave was not interested in equity ownership nor bonus but just the regular remuneration for their services.
The second group had more experience and skill; they had enough time to dedicate to the development of the primary application of SkyBox. The demand for SkyBox rose though there was a shortage of capital to meet the demand from the customers and investors and this led the second wave of developers leaving as they could not bear with the shortage in equity.
The third wave of programmers came from across all the country from Tim’s promotional trips; they created a very interactive application that was used in the stadium as deployment for Vivid Sky. From the quality work that they did, Tim decided to give them a bonus in the form of equity. The major challenge was the opportunities in the market that proved hard to keep up with and the other challenge was that they were untested developers in the iPod touch and iPhone platform.
The benefits and problems of using equity to compensate employees
According to Wellner (2006), there are various advantages and disadvantages associated with offering equity as compensation to employees, and they include;
When the employees are compensated using equity instead of cash the business is in a position to conserve cash for other important expenses and transactions.
“When equity is issued as a form of compensation to employees the financial interests of the employees align with those of the company; this is because the employees’ primary objectives will be inclined to the future of the company” (Wellner, 2006). This gives employees a great sense of belonging and ownership as employees view themselves as owners and not as employees only and with a positive attitude in the employee workforce a better output is guaranteed.
Issuing equity as a form of compensation helps to reduce employee turnover. Most vesting schedules give four-year duration with a one year cliff. When employees are shareholders to the company, they may want to stay longer so as to keep a direct supervision on the performance of the company thus reducing the employee turnover.
According to Akalp (2015), equity-based compensation to employees is very complicated than the cash system, there needs to be an experienced tax officer and a securities attorney to ensure there is no need to register under the federal securities law and that the necessary anti-fraud provisions are met.
There is also the risk of giving away too much ownership of the company; it would compromise the fact that just a small majority should hold outside ownership of the company.
“During a buy out there may be problems as some buyers may want to access the entire 100% of the company’s stock instead of an IPO” (Akalp, 2015).
Tim could have managed the 3rd wave of employees if he hired them from the start;
This is because they had more experience and saw potential in the SkyBOX as they wanted to get it to the next level by creating an extremely interactive application that was used in the first deployment. Unlike the first group they had the unconditional respect towards Tim as the founder of Vivid Sky and as the owner. The small compensations he had offered to the other two groups would have been in the reserve and could have been used to meet the extra cost of launching Vivid Sky to investors and stadiums. The equity he had issued to the third wave would have in return worked as a great incentive to them and worked even harder to the success of SkyBOX.
Should Tim replace the third wave of programmers?
No; this is because they had already shown their dedication to the development and growth of Vivid Sky and they already have a share of the company. Moreover, this already was an enough incentive for them to work with the objective of seeing Vivid Sky to success.
Wellner, S. A. (2006, April 01). Vivid Sky. Retrieved January 22, 2016, from http://www.inc.com/magazine/20060101/valuation-vivid.html
Akalp, N. (2015, June 16). The pros and cons of offering equity to employees. Retrieved January 22, 2016, from http://mashable.com/2015/06/16/offering-equity-employees/#DfOfPjRGZsqi