Reward System Business Strategies and Entrepreneur Team Ownership Student’s Name: Wafa Anazi Instructor: Ting Zhang May 1, 2019 Literature Review Equity share or the distribution of ownership can be said as giving a part of ownership to another individual who is generally a non-cash compensation. Considering the point that equal distribution of ownership is a complicated affair, it is crucial for the company to utilize suitable “accounting, legal and tax advice and planning.” The objective behind equity compensation is to attract and keep employees because the start-up companies are short of experienced employees. According to Friedman (2018), “entrepreneurs should make sure that reasonable equity positions are part of every key employee’s overall package.” It helps in guaranteeing that the entrepreneurial team is having the enthusiasm and has a genuine appreciation for the overall welfare of the company. Although, equity cannot be compared with casg, however, it is an important part of a good sound strategy. In the current competitive world, entrepreneurs are creating an innovative business environment involving their partners due to an increasing need for skills to work on diverse tasks. Entrepreneurial teams have been credited to be the heart and the success of many organizations. Most scholars have attributed them as the main force that attracts funding and support to the innovative ideas within the company. Entrepreneurship plays a significant role in improving the economy by creating changes that influence the economies of the market. In light of the constant change in a business environment, most scholars have shown how teamwork improves entrepreneurial development. Recent studies have shown that an equal distribution of ownership in a business means that the members get more compensation. Every member knows the task they are playing and will put all their efforts to achieve their goals. With each contribution from the members, there is a higher chance of reaping more benefits from the work they have done. Studies have also indicated the need to create equal ownership of the business will help the members to receive more benefits because they have successfully assembled and stayed together. Zhou & Rosini (2015) proposed an integrated motivation model aimed at targeting different stages of the entrepreneurial team. “The different model range from major relation governance supplemented by contract governance at the team building stage, while from major governance supplemented by contract governance at developing and adjourning stage” (Zhou & Rosini ,2005) Further, the study by Monica on entrepreneurs of Venezuela (2013), revealed that entrepreneurs are motivated to work based on the objective to increase their income. In order to keep the whole team as motivated, it is important the goal of increasing income should be considered for each and every member of the team. In other words, compensation packages need to be given to each employee resulting in equitable distribution. Based on the above literature review it seems true that different compensation packages such as overtime pay, paid leaves, medical insurance is associated with the more equitable distribution of shares among entrepreneur team members. Entrepreneurship is largely considered as a solo career path, but in actual sense, it is an environment where there is an effective collaboration among members to achieve success. The primary purpose of this literature reviews is to ascertain the compelling evidence that indicates a high probability of compensation types to members of an entrepreneurial team in an equally distributed ownership structure. Thomas Littée conducted a study in 2014 on the make of start-up ventures that involved innovative business owners. He found out that start-up businesses were successful when the tasks were equally distributed because they shared the same outlook and objectives. With a clear vision about their organization, Thomas found out that the different skills and personality enhanced the management of the business. A behavioral psychologist B.F. Skinner in his study of behavioral reactions highlights the fact that the increase of incentives programs can be attributed to the reinforcement of positive delegation of tasks to team members to ascertain their effectiveness. Skinner also indicated that job satisfaction is a major contributor to their wage level because they will be more inclined to perform their duties effectively. The spreading of ownership among the key players motivates the entrepreneurs to see what needs to be done to improve the business. Compensation is calculated based on seniority with the business. If the members have equal rights ownership and shares, then they have to be compensated equally. The contribution of each member will help reduce some wastages and unnecessary spending in a business. A research done by Annertech showed that a distributed ownership of the company increases productivity. The study indicated that the owners would be more focused on handling the tasks at hand without any interruption as compared to those working remotely without anyone poking their head in their offices. The members of a team can also have a better family leave especially when they have kids to take care of. They can work at home which is a good means of flexibility where they can attend to their kids and do other tasks related to work. More distributed ownership also gives the team members more flexible working hours according to their studies. They concluded that the members of business will be able to set their working schedules and can take time off to deal with their childcare issues on weekends. They save a lot of time community and get more time for their families on the extra hours that could be spent community every day to work. They have time to sell the company wherever they go therefore improving the sales that will trickle don’t to their compensation for their achievements. Team owners can establish their offices at their homes to get closer to clients. It makes the company leaner because there are fewer overheads as compared to that of competitors. Issues of electricity bills, furniture, water coolers and rent for offices will be minimized significantly, therefore, saving the company a lot of money that will be used to compensate the owners for their work. Liu, Chen-Ching, Stephen McArthur, and Seung-Jae Lee found out that the distributed ownership of business makes the members become market participants who are directly engaged in company-related transactions. The ownership structure helps distribute the risks that the business may face among its owners. The owners will also improve the company's ability to add its assets coming from each member and if the rate base is maintained the revenue that is generated will be distributed equally among them according to the revenue structure. The distribution of the ownership equally means that there will be an equal allocation of income, credit, deduction, and, losses within the business among the partners. Jean Murray holds a position that if the owners have an equal distribution of shares, then their compensation should be based on the net income of a business in accordance with the corporation return form 1120-S or partnership return which is Form 1 065. The tax return will be filed based on their percentage share of shares that they own within the company. The collective ownership unlocks enthusiasm that brings together the scattered funds. With the harmonization of the market economy, the owners can tap their own strengths which will help leverage the market mechanism (Zheng, 2018). The partners have the right to invest in stocks and therefore becomes crucial in motivating them to make the enterprise more cohesive and improve its success. Zheng indicates that the allocation of equal rights in business boosts the potential to produce and increase incentives that will promote economic development. The issue of a wide income gap among the partners will be minimized; therefore the motivation will be improved under an equal ownership distribution system. Members are more likely to understand each other because they consider each other equal in terms of labor and compensation remuneration. Nicolas J. Mastracchio provided a formula that will determine the base salary of an owner in his Guide to practice valuation. Mastracchio studies focused on determining the fair value of the services that the owner provides to the company. In his formula, he asserted that the owner takes money from a business which is a combination of their return on investment and their compensation (Aquila & Rice, 2013). The owner’s services are quantified using on a simple or complex compensation based on their value to the business. Each criterion will be quantified as a salary before the equity distribution. Aquila & Rice calls on the attention that firms ought to tie the position that a member holds to the compensation plan. The initial base salary of an owner is normally based on the local market figure and the worth of a job. In spite of which appointment methodology picked, the owners will always license themselves as the CEO to make further adjustments subject to the execution of individual partners. The goal of the advantage sharing or reward plan is to repay agents for their duties to the general essential concern achievement of the business-it is definitely not a capability program. This is a true fact considering that the responsibilities and risks that an owner handles are far greater as compared to those of the employees. Owners deserve more benefits to improve the management within the company effectively (Aquila & Rice, 2013). Privately owned businesses must have a yearly outside valuation to decide the cost of their offers. Balsam comes up with a theory on the fact that the interests that a shareholder has on a company will influence the benefits that they get in terms of compensation and vision of the business. In most cases, the risk that is associated with the fluctuation in the price of shares affects the owners within the company. Balsam defines a risk aversion in his findings to indicate why owners use their shares to influence the compensation packages that they receive from the company. Because they have large holdings, they will make variance increasing investments and include stock in their compensation that may provide an increase in incentives due to the risks that they are taking. Balsam also found out that only pays taxes upon the selling of the shares rather than on ordinary income rates. It becomes an incentive because of their deferral of taxability through a lock-in effect. The owners can only sell shares upon exercise to diversify and for liquidity purposes. In any case, it gives a sensible way to the entrepreneurial team to appreciate what the potential reward is, in case they work radiantly and that is course better than anything an unadulterated organization judgment plan. They influence the game plan, to clear up how it works and that the better the association plays out, the more the best performing delegates will profit by that achievement too. This will most likely suggest that the owners must be progressively clear the compensation packages. Because of the sharing of compensation and extra assets, this kind of possession is regularly expected to yield higher earnings. When compensation package pool is being determined, the owners will choose his advantage sharing pool paying more attention to how much profit the association earned. It's a direct and rich way to offer compensation to owners depending upon how well the company performs putting the team to the advantage. There is a huge amount of research that exhibits that an 8% remuneration is normally enough to impel an owner to change work schedules and perform better (Balsam, 2013). Compensation packages directly affect all parts of the business especially workforce costs, profitability, and commitment of the owners. Balsam declares that making reasonable leave programs benefits both the business and the ability supporting the association. An organization can catch a variety of advantages by adopting a venture wide strategy for overseeing paid leave. The compensation packages of Google's involved a paid maternity leave from 12 weeks to 18 weeks. The compensation packages enable the owners to be more active in maintaining consistency in a company. Balsam strategy will involve compensation of the owners subject to their contributions in the business. He goes on to states that it can be done by isolating up the pool into offers, where each offer merits a particular dimension of the pool. The reward was was reliant on the number of offers an agent is given- - by and large subject to their circumstance in the association. offer s are given based on each to cutting edge employees, for instance, while the boss gets two offers, and senior authorities get three. It is crucial to share the benefits among proprietors and there exist the potential for clashed to evolve between accomplices over business choices. Flood declares that with motivating forces in the new assessment law, and the directed debilitated and family-leave activities in a developing number of states, it's conceivable the United States could before long be on the way to coordinating paid leave the world over. Meanwhile, it keeps on tumbling to managers to screen best practices, surveys their nonattendance dangers and expenses, and fabricate a key arrangement that underpins the association's objectives just as representative needs. Offers in the trust are distributed to singular owners’ records. At the point when representatives leave the organization, they get their stock, which the organization must repurchase from them at its equitable esteem (Flood, 2015). In privately owned businesses, owners vote their designated offers on serious issues, for example, shutting or moving on with a business deal. It is valuable in the beginning times of the business where various individuals are included. The compensation package was analyzed by Thomas and Donald who tried to evaluate the compensation package. This was a family-owned company which provided equity-based compensation to its owners after a significant increase in profitability. With the growth of the company, the recognition was to the people who had played a key role in improving the fiscal health of the company. Thomas J. Hackett and Donald G. McDermott who are partners with the D. G. McDermott Associates, LLC declares that ownership of the company means the right to reap the benefits and making decisions on its operational activities. The rights of owners include income, the surplus value in case the company is sold or the permission to sell value of a business. Owning a company can be in the form of a partnership, and members can choose to remain inactive while receiving the income (Hackett & McDermott, 2015). The company keeps growing due to the financial and personal sacrifices that the owners make. They also declared that most owners would pledge their personal assets to acquire funds that will keep the company afloat. If they sacrifice the inevitable long hours and commitments to run a business, then they will need to be compensated very well. The Owners are always concerned about the sharing of equity, its future risks and the value (Hackett and McDermott, 2015). The owners have the right to oppose direct equity ownership of the company if they fear their ownership dilution with the company. The compensation packages usually depend on performance-based unit plan, and if the target revenue is exceeded, then the owners will be in a better position to earn more as compared to the employees. The number of shares issued is subject to reverse testing which involves their stay with the company. It is also dependent on their contribution as the company moves forward. The creation of entrepreneurial behavior will not materialize unless the employees or shareholders believe that they will be awarded accordingly. Stevenson and Gumpert indicated that the different compensation motivates the employee to remain loyal and intact with the organization. According to Kuratko et.al. , “reward system concerns with the development and utilization of the system which analyzes reward based performance structures which assist employees in pursuing further challenging work.” However, Moghaddam (2017) highlights that reward may not be necessary for influencing the decision-making process to attempt new endeavors. Mohammed Reza and Amir Hussain (2013) highlighted that different reward system engages employees towards significant achievement. In start-ups, the disproportionate distribution represents the contribution of each team member and explicitly aligns the incentives, expectations, and status throughout the team (Breugst, Patzelt & Rathgeber, 2015). A well-developed entrepreneurial team is key to the success of the start-up firm. For determining the effect of equity distribution, Breugst, Patzelt & Rathgeber (2015), conducted a longitudinal study and found eight entrepreneurial teams; four teams with equal and four with unequal equity distribution. These entrepreneurial teams were recorded for a period of six months while further tracking them to an additional six months. The purpose was to record a crucial event such as team member exist. An inductive coding strategy was followed, and a dynamic model was developed from the collected data. It was found that greater equity distribution results in high perceived justice which further triggers positive team interaction spirals consisting of an increase of team spirals which consist of an increase in team interaction. In other words, the entrepreneurial team experience of being a strong entity. Entrepreneurs tempt to treat each partner equally and distributes stocks which represents a serious red flag. It is important to have good equity allocation as poor distribution of equity results in low morale of the employees. There is a large number of issue a start-up has to deal with, where, equity, the distribution of share is the core issue. The distribution of equity can be said as an emotionally laden decision. According to Hall and Woodward (2010), “Equity ownership represents the primary economic reward entrepreneurs receive in return for their efforts and investments into the venture and is connected to the level of power and control in their firms.” References Aquila, A. J., & Rice, C. L. (2013). Performance is everything: The why what, and how of Balsam, S. (2013). Equity compensation: Motivations and implications. Balsam, S. (2014). An introduction to executive compensation. San Diego: Academic Press. Breugst, N., Patzelt, H., & Rathgeber, P. (2015). How should we divide the pie? Equity distribution and its impact on entrepreneurial teams. 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