Barry McCarthy, CEO of Deluxe Corp., wants to change the company’s culture and believes that giving all employees shares in the company will help do that.
In the second quarter, the provider of small-business services, checks and business forms awarded a minimum of $750 worth of restricted stock to the company’s approximately 6,500 employees.
McCarthy, who was named CEO of the Shoreview-based company in November, is trying to empower employees to think and act more like owners.
“One of my most important early goals was to begin the cultural transformation from a traditional manufacturing company to become a more tech-like company, driving innovation with constant reinvention,” McCarthy said in a release.
Shares were granted April 1 to North American employees (the company estimates its less than 100 employees in some foreign countries won’t be eligible). During the company’s “Owners Week” event three weeks later, employees learned what it means to own shares, how to set up accounts, about dividends and how they can vote their shares.
The only restrictions on the shares is that employees must be with the company for three years for the shares to vest. Ultimate value of the stock grants will depend on Deluxe’s share price when shares vest. With time-based restricted stock, as opposed to stock options, there will be value for employees when shares vest even if the stock price goes down.
The company said it’s a one-time event. Officials didn’t disclose how many total shares may be involved but said it wouldn’t be dilutive to its existing shareholder base. Deluxe has 43.6 million total shares outstanding.
Long-term equity grants have long been a part executive-compensation packages under the belief that its aligns executive interests with shareholders to create maximum value.
Before this program, approximately 10% of Deluxe employees received shares in the company, said Ed Merritt, Deluxe’s treasurer and vice president of investor relations.
Grants were made based on the employee’s level within the company and their existing compensation. So far the program has been well received by employees, and existing shareholders expressed support of the plan.
“Some employees have said, ‘This is the first time I’ve ever had an investment before, this is the first time I’ve ever owned part of a company,’ ” Merritt said.
Equity grants are nothing new to tech companies and startups, and McCarthy wants Deluxe employees to adopt the entrepreneurial spirit of those companies.
Equity awards are used by tech companies and startups to provide employees with incentive to share in the long-term success of the company and to make up for the sometimes lower than market rate wages while the company grows.
Deluxe is a mature company and employees are paid pretty well. According to Deluxe’s most recent proxy statement, the median employee at Deluxe makes $59,336 per year.
But the company needs to refocus to achieve McCarthy’s new strategic initiatives.
“Tech companies think and act differently. Employees with a vested interest in the company benefit more directly when the company thrives,” McCarthy said.
There have been legendary stories of early tech-company employees who were granted equity and later became millionaires when those shares were cashed out when the company was acquired, went public or they retired.
Shares of Deluxe Corp. are up 9% since the start of the year, but down since shares were granted on April 1.
“So far it has had a very positive result,” Merritt added. “It has gotten people to think and act differently.”