HKBN management buyout scheme pushes executives to invest in themselves

Earlier this year, Billy Yeung, founder of the Wi-fi service Y5ZONE, decided to accept the acquisition of the company by Hong Kong Broadband Network (HKBN). One factor which influenced his decision was HKBN’s distinctive management buyout programme which was included in the deal. He felt this reflected a positive company culture where responsibility for driving future growth, as well as the benefits of success, were being shared among employees.

HKBN initiated its management buyout programme last summer. The programme, uncommon in its breadth, offered every one of the managerial staff the opportunity of becoming a co-owner. This was done with the aim of making these executives more personally connected to the future of the company.

“A typical management buyout will involve 10 people,” says Ni Quiaque “NiQ” Lai, HKBN’s head of talent engagement and chief financial officer, and one of the key decision makers behind the programme. “We intentionally diluted ourselves to broaden the base. Our thinking is that the success or failure of this company doesn’t rest on the shoulders of 10 people – its success or failure belongs to all the managers.”

The company’s managers were invited to become co-owners about a year ago, with a second batch invited last month to extend the opportunity to newly recruited executives.

Managers were asked to invest money in HKBN, typically one to two years’ salary, which will be locked into the company until a planned initial public offering (IPO) goes ahead in the coming years. In return, managers would gain part-ownership.

Lai says they had to provide some education about the company’s finances to managers, particularly those who did not have finance backgrounds, to help them decide whether to invest such a large amount. Managers were shown the five-year financial plan the company presents to banks. Lai points out that just by learning about the company’s finances in this kind of detail, the managers already became more connected.

Uptake of the programme was considerable, with the majority of the managers – 79 in total – choosing to become co-owners. These members of management collectively took a stake of around 14 per cent in HKBN, having invested HK$180 million.

Lai emphasises, however, that the aim of the management buyout programme was not to generate extra wealth. “We didn’t need the money,” he says. “In fact the financial investors were well oversubscribed, so they had to claw back their holdings to allow us to have this management buy-in.”

Instead, the programme was aimed at allowing the managers to share more closely in what happens to the company, whether that be failure or the more anticipated success of an IPO in a few years’ time. “If we’re going to create a boat load of value, which we plan to, we hope that the managers will share in that,” Lai says.

Becoming co-owners with a significant investment has made the managers more interested in HKBN’s financial growth. “Every month we share a financial report,” Lai says. “You can see how your investment is doing. I think people do care.” 

In this way, one of the main benefits of the co-ownership is the way it works to line up individual managers’ interests with those of the company. Whether the company does well or badly, the outcome for the manager follows the same path. If a manager performs well and helps the company to succeed, then this will also directly translate into success for them.

“It’s a simple alignment of interests,” Lai says. “If you think you’re good, we’re going to give you an opportunity to double up on your returns, if you deliver,” Lai says. “We’re going to give you an opportunity to earn financially more than what a salaryman can earn.”

Because the potential gain is so much greater, the programme provides more effective motivation to succeed than an end-of-year bonus. “End-of-year bonuses become somewhat irrelevant,” Lai says. “Typically, the bonus is plus one or two months. We’re talking about a multiple of two-year salaries. So where are you going to focus your time?”

Yeung, who is now managing director of HKBN’s Wi-fi business, says that the existence of such a large co-ownership programme also offers incentives to more junior employees. They know that if they perform well, they may be given the opportunity to become co-owners in future.

“It’s motivation for junior staff,” he says. “They see the benefits and have another objective or goal, pushing them not only to do more within their department, but also to show us that they can think outside the box.”

Another benefit of the company’s broad co-ownership, Yeung says, is increased teamwork. With so many co-owners, there is a much more collaborative approach to problem-solving than is usual in most corporations.

“In a corporate company, your problem is your problem – you deal with it yourself,” he says. “In the culture here, the problem is taken back to the 79 members. We argue about it, we talk about it, and it’s a problem that is shared.”

Alongside Yeung, another employee who became a co-owner through the programme is Mingo Tsang, an assistant sales manager.

Tsang joined HKBN around two-and-a-half years ago. He was one of two people selected from over 1,000 applicants for the company’s “CXO of the Future” management trainee programme for future chief experience officers.

At just 23, Tsang is the youngest manager to be invited to be a co-owner. He sees the programme as offering him a unique chance to become closely involved with the company at such a young age. “I have the opportunity to look at the company from the perspective of a co-owner,” he says. “I don’t think any other company would provide such a youngster with such opportunities.”

Becoming a co-owner has helped make Tsang feel much more personally connected to the fate of the company. “When I was a management trainee, I was required to look at things at a broad level,” he says. “But to be frank, if the enterprise solutions department acquired a new corporate customer, I would feel it was their achievement. After I became a co-owner, I feel that this is our achievement. I feel proud of it. I have a sense of belonging after becoming a co-owner.”

For both Yeung and Tsang, the management buyout programme has given them opportunities to become closely involved in HKBN and to potentially gain great personal benefit from its success. It has helped give each of them a close connection to the company and its future. “I really feel I am part of the company,” Tsang says. “This is my company.”

NIQ LAI’S PRO-PEOPLE POLICIES

Employees as individuals “Most companies say people are their biggest asset. We think that’s wrong. Because people are people. They’re not just a machine that you can oil and it works faster. We have individual aspirations and individual desires. You have to appeal to that. You have to have a platform that treats people as people.”
Financial security for staff “What we hope to offer our people is financial security. This is different from just being paid well.”
Collective ownership “There are a lot of clichés about taking ownership in your work, but we make it into reality and say ‘take equity in our company’.”