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WORKBOOK — THE LUMINOUS GAINSHARE EMPLOYEE

Chapter I.11 · Handing It On

For the person working inside a gainshare arrangement — where a defined share of verified improvement returns to the people who created it. This chapter is about what happens to that arrangement when the person who wrote it leaves, and about the fact that a gainshare is the only form of ownership most people ever get offered. Read it as your own succession, because it is.

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THE THING NOBODY TELLS YOU ABOUT A GAINSHARE

A gainshare is a promise about the future made by somebody who may not be there for it.

That is not a cynical observation, it is a structural one, and it is the reason this chapter is in the volume. Your gainshare has four parts — a baseline, a measure, a share, and a period with a verifier. Every one of them was decided by a person. Nothing in a standard gainshare survives a change of ownership, and very little of it survives a change of chief executive, because a scheme document is a policy and a policy is inherited by whoever is hired next.

The structures in this chapter are the difference between a policy and a property right. A purpose trust with a reserved matter over "alteration of the profit-sharing arrangement" converts your gainshare from something the company does into something the company may not stop doing without a consent it does not control. That is the whole distance, and it is one clause long.

So this workbook has one argument running through it: the succession is where your gainshare is decided, and it is being designed right now, probably without you in the room. Here is how to read it, what to measure, what to claim, and what to ask for.

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PART ONE — READ THE STRUCTURE YOU ARE ALREADY IN

Week 1

Exercise 1.1 — The five questions (two hours, in writing)

Get the scheme document and answer these. Where you cannot answer from the document, that is the finding.

1. Who can change this, and by what process? A board resolution? A consultation? A consent from somebody outside management?
2. What happens to it on a change of control? Is there a clause? If there is no clause, the answer is: it ends at the acquirer's discretion.
3. What happens to the baseline when a gain is realised? If it resets to the improved level every period, you are on a treadmill and each cycle of effort yields less. A sound scheme holds the baseline for a stated term — three to five years — or ratchets on a published schedule everyone can see coming.
4. Who verifies, and who appoints the verifier? If management appoints the verifier and management is measured by the result, you have one party on both sides.
5. Is the share a percentage of gross improvement or net of costs, and who decides what counts as a cost?

Question one is the succession question. If the answer is "the board, by resolution", your gainshare has exactly the lifespan of the current board's opinion of it.

Exercise 1.2 — Find out what is actually being planned (one conversation)

Somebody in your organisation knows whether a succession or an ownership change is being contemplated. You are not asking for confidential information. You are asking one legitimate question: "When ownership next changes here, what happens to the gainshare — is there a clause, and has anyone looked at it?"

Ask it of whoever runs reward or the company secretary. It is an entirely proper question and the most common honest answer is that nobody has looked. That is the opening.

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PART TWO — THE ARITHMETIC, FROM INSIDE

Weeks 2–4

Exercise 2.1 — Compute the ceiling yourself (90 minutes)

        g*  =  ROE × b

You can compute this from published accounts if you work for a company that files them, and from the pack if you have access. Return on equity multiplied by the proportion of profit retained gives the fastest the business can grow without raising outside money.

Why does this matter to you? Because the retention ratio b and your gainshare are the same money. Every pound distributed is a pound not retained, so the ceiling falls. That is not an argument against the gainshare — it is the argument for understanding the trade, because it is the argument that will be made against you in the succession negotiation and you should arrive having already done the sum.

The honest position is this: a gainshare that distributes a share of verified improvement reduces b only against profit that would not have existed without the improvement. A bonus paid out of baseline profit reduces b against profit that would. Those are different instruments and your scheme is almost certainly documented as the first while being discussed as the second. Know which yours is and be able to say so in one sentence.

Exercise 2.2 — Price your own deferral (60 minutes)

If any part of your gainshare is deferred — vesting, a holding period, shares released over years — discount it.

  PV = (amount / n) × Σ 1/(1+i)^t    for t = 1…n

At 8 percent over six years, a promised £8,000 is worth about £6,160 today. That is not a complaint; it is a number, and it is the number to use when somebody offers you a larger deferred figure in place of a smaller present one. The executives on the other side of that conversation discount their own deferred consideration as a matter of routine. Do the same and you are having the same conversation they are.

Exercise 2.3 — Build the claim file (ongoing, 20 minutes a week)

The single most valuable habit in a gainshare is a contemporaneous record. One line a week:

Contemporaneous beats reconstructed, every time, and the reason is not fairness — it is that a reconstruction arrives after the number is disputed and a record arrives before. A year of this file is the difference between a claim and an assertion, and it costs seventeen hours.

Exercise 2.4 — Learn which vehicle is on the table, and what it means for you (90 minutes)

Succession conversations use a small vocabulary. Knowing which word is being used tells you a great deal about what is about to happen to your share.

The row that matters most to you personally is the EOT and ESOP row, and the reason is uncomfortable and worth knowing in advance: the money that buys the company from the founder is the same money that could have funded distributions, for as long as the deferral runs. A six-year payout is six years of constrained distributions. That is not a reason to oppose it. It is a reason to ask about the term, which is the variable that actually moves — halving a payout from six years to three changes the economics of the whole transaction more than any tax relief in it.

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PART THREE — WHAT TO ASK FOR IN THE SUCCESSION

Weeks 5–8

This is the operative part of the workbook. Five asks, in ascending order of difficulty. Ask for them in this order, because the first two cost the company almost nothing and getting them makes the third easier.

Ask one — a change-of-control clause. That on a change of ownership the scheme continues on its existing terms for a stated period, or is bought out at a stated formula. Cost to the company today: nil. This is the ask that is almost never refused because refusing it is an admission.

Ask two — a fixed baseline term. That the baseline is held for three to five years, or that any ratchet is published in advance. Cost today: nil. It removes the treadmill and it makes the scheme worth working for.

Ask three — an independent verifier. That the verification is done by someone management does not appoint and cannot instruct. Internal audit is often enough. Cost: small and mostly existing.

Ask four — a seat where the measure is set. Not a seat on the board. A seat in the room where the measure and the baseline are defined for the next period. This is worth more than a percentage point on the share and almost nobody asks for it, because it does not look like money. It is.

Ask five — the reserved matter. That alteration of the profit-sharing arrangement is added to the reserved matters of whatever purpose trust or control vehicle the succession creates. This is the ask that converts a policy into a property right, and the moment to make it is while counsel is drafting and the list is still open. Three weeks later it will cost a deed of amendment and a board meeting, and it will not happen.

How to make ask five, in one sentence: "While the reserved matters are being drafted, could alteration of the profit-sharing arrangement be one of them? It costs nothing today and it is the thing that makes the structure credible to the people it is supposed to benefit."

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PART FOUR — YOUR OWN SUCCESSION

Weeks 9–12

The chapter's four-part operating memory is not only for founders. It is the instrument that makes you promotable, and the reason is unobvious: the person who cannot be replaced cannot be promoted.

Exercise 4.1 — Your twenty standing decisions (four hours, spread)

Twenty decisions you re-make without revisiting, each with the alternative and the change-condition. If your role has fewer than twenty, use ten and go deeper.

Exercise 4.2 — Your five numbers (45 minutes)

The five measurements that tell somebody your part of the operation is well. Test: could a competent colleague read these five and correctly diagnose it without asking you anything? If not, one is decorative.

Exercise 4.3 — Your successor, named (one conversation)

Name the person who could do your job, tell them, and start handing one thing a month. Two things follow, both good. You become visibly a builder of capacity rather than a holder of it, which is the single strongest signal in a promotion discussion. And you find out, in low-stakes conditions, which parts of your role were never really yours.

Exercise 4.4 — The gainshare handover note (two hours)

Write, for whoever comes after you, the page nobody wrote for you: what the scheme actually is, where the document lives, what the baseline is and when it was set, who verifies it, what has been claimed and on what evidence, and what has been asked for and refused. Give it to your successor and to one colleague.

This is the small, specific, entirely achievable act that makes the arrangement outlive the people currently inside it — and it is the same act, at a different scale, that Abbe performed in 1889 and Bosch in 1937. They wrote down what they knew and gave somebody else the power to enforce it. There is no other mechanism.

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THE TWO THINGS TO MEASURE ALL YEAR

Almost everything above is episodic. Two things are continuous, and they are what turn a good year into a good claim.

One — the improvement, with its counterfactual. A verified gain is a difference between what happened and what would have happened. The second half is where claims are lost. Record, at the time, what the trajectory was before the change: three periods of prior data, the trend, and one sentence on what anybody expected. A counterfactual written before the result is evidence. The same counterfactual written afterwards is an argument.

Two — the transferability of what you do. Keep a simple count: how many of your standing decisions now have a written change-condition, and how many people other than you could execute your five numbers. Both should rise every quarter. This is the measure the chapter is actually about, and it is the one that makes you promotable rather than merely valuable — because an organisation cannot promote the person it cannot replace, and that constraint is arithmetic rather than politics.

At year end those two records together answer the only two questions a verification meeting can ask you: did this improvement happen because of you, and does it continue without you. Nobody ever has both answers written down. Having them is the whole advantage.

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THE LEDGER — how this reads at year end

The last two rows are the ones nobody supplies and both are yours to compute. A gainshare statement that gives you a gross figure and no deferral discount and no change-of-control position has told you what you earned and not what you hold.

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SELF-ASSESSMENT

Under 20: start with Exercise 1.1. Every other row depends on knowing what the document actually says, and most people in a gainshare have never read it end to end.

Over 32: make ask five, and make it while counsel is still drafting.

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THE CLOSE OF VOLUME I

This volume began with one person and a Monday, and it ends with the question of what survives that person. A gainshare is where most people meet that question first, because it is the first time most of us hold an economic interest in something we do not control.

The method has been the same in all eleven chapters. Find what is already working. Measure it before you change it. Build the instrument. Commit irreversibly at a scale that is small enough to survive and large enough to count. Tell one true story to the person who decides. Then write it down so it does not depend on your continued presence.

You can hand that sequence to somebody else now, in one conversation, and they can use it on Monday. That was the test this volume set for itself in its first paragraph, and it is the only test that matters — because a practice that cannot be transmitted is a talent, and talents die with people.