Rewriting a Share Plan So Managers Could Understand It

The situation

Mathan's question, when he first called our office, was blunt: 'If none of my managers can tell me what they actually own, what did I just hand them?' He had built his construction company from a two-truck operation into a business doing somewhere between $20 million and $60 million a year, and alongside it he had put together a modest sideline as a commercial landlord, renting warehouse space to other contractors around Woodstock. He was proud of both, and he wanted the people who had helped him build the company to have a real stake in it, not just a paycheque tied to a job title.

Three years earlier, on the advice of a general business lawyer, Mathan had rolled out an employee share purchase plan for three senior managers, including Nirosha, who ran operations, and Tarek, who handled estimating. The plan let each of them buy a small block of shares through payroll deduction, priced off a formula tied to the company's book value, with purchases happening once a year and a statement issued each time showing the new balance. It was drafted from a template a colleague had used for a similar-sized company in another sector, and at the time it seemed straightforward enough that nobody thought to test it against the actual books before rolling it out to real employees with real money at stake.

For three years the payroll deductions came off quietly and nobody asked many questions. The annual statements arrived, the numbers moved up a little each year, and everyone assumed the process behind them was sound simply because nothing had visibly gone wrong. Then Nirosha needed a current statement of her holdings for a mortgage renewal, and the spreadsheet the bookkeeper sent her did not add up against the one she had received the year before, not by a small rounding difference but by an amount large enough to change what the bank thought she was worth. She raised it with Tarek, who pulled his own old statements and found the same kind of inconsistency going back further than either of them had noticed. Both of them raised it with Mathan directly, and within weeks it was clear the three managers no longer trusted what they had been told they owned, with two of them openly asking whether they should simply cash out while they still could.

Mathan did not want to lose either of them, and he did not want to keep handing out statements he could not personally vouch for in front of people he considered friends as much as employees. He came to us not with a legal dispute but with a plain question: what do these three people actually own, and how do we get a plan in place that tells them the truth every year without a fight breaking out over numbers nobody could independently check.

What the review found

We started by pulling every version of the plan documents and every valuation statement issued since the plan began, and asked the company's bookkeeper for the underlying working papers behind each one. It took two meetings before it became clear that nobody, including the bookkeeper, had actually reconciled the formula in the plan against the company's real financial statements in over two years. The numbers had been rolled forward from a template spreadsheet, with adjustments made by hand whenever something looked off, and no consistent method behind any of it, which meant three years of statements had been produced by a process nobody could fully explain after the fact.

Once we rebuilt the accounting from source documents, working line by line against the company's actual year-end financials rather than the spreadsheet everyone had been trusting, three separate problems emerged. The book value formula in the plan referenced a retained earnings figure that had not been updated since the second year of the plan, so every later statement was quietly built on stale numbers that no longer reflected two years of real operating results. A construction-in-progress asset on a large multi-year contract had been counted twice in one year's valuation, once under its own line and once folded into a broader inventory figure, inflating the company's apparent worth and, with it, the price employees were told to pay for new shares that year. And the employee purchase price for the most recent tranche had been calculated using a share count from before a small prior buyback the company had done to reclaim shares from a departed employee, which meant the price per share was wrong for everyone who bought in during that period, not by a trivial margin but by enough to matter.

The practical effect was that the three managers' actual positions bore little relationship to what their statements said. Nirosha, who had bought in early and steadily each year since, turned out to hold shares worth meaningfully more than she had been told, a gap that had simply compounded quietly with each annual statement. Tarek, who had bought his largest single tranche during the mispriced period tied to the buyback error, had paid more than the shares were actually worth at the time under the corrected numbers, which put him in the opposite position from Nirosha for reasons that had nothing to do with either of their own decisions.

None of this was deliberate. It was the ordinary result of a formula nobody had stress-tested being run by hand, year after year, without anyone checking it against the real books until a mortgage renewal forced the question. But the effect on trust was the same either way, and it meant any fix had to deal honestly with the fact that one employee had been overpaying while the plan looked, on paper, like it was working fine for everyone involved.

What we did

1. Pulled every version of the plan documents and statements issued since the plan's inception, so we had a complete paper trail of what each employee had actually been told and when, rather than relying on anyone's memory of conversations that had happened over three separate annual cycles. That paper trail turned out to matter later, since it let us pin the errors to specific years rather than leaving the dispute as a general sense that something, somewhere, had gone wrong.
2. Rebuilt the underlying accounting with the company's bookkeeper, working from source financial statements rather than the rolled-forward spreadsheet everyone had been using, which is what surfaced the stale retained earnings figure, the double-counted asset and the outdated share count all in the same pass. Going back to source documents rather than trusting the spreadsheet was the only way to know whether the plan's formula itself was sound or whether the numbers feeding it had simply drifted from reality over time.
3. Recalculated each employee's position under both the flawed formula they had relied on and the corrected numbers, producing a side-by-side comparison so Mathan could see in dollar terms exactly how far each of the three managers' actual holdings differed from what they believed they owned. Having both figures side by side, rather than just a corrected number on its own, let Mathan see precisely how the error had moved money in opposite directions for two different employees.
4. Met with Mathan alone first to walk him through the exposure before any employee saw a number, since he needed to decide how he wanted to handle Tarek's overpayment, and what he was personally prepared to absorb, before that conversation happened in front of the group. Giving him that room privately meant he arrived at the group meeting with an actual proposal in hand, rather than negotiating his own exposure for the first time in front of the people affected by it.
5. Convened all three employees together with Mathan for a single transparent meeting where we explained the accounting errors, the corrected figures, and the reasoning behind them, rather than handling each employee separately and risking three different stories circulating among people who talked to each other daily. A single shared meeting meant every manager heard the same explanation at the same time, which closed off the risk of the story shifting as it passed between them afterward.
6. Negotiated a settlement approach for Tarek's overpayment that blended a partial share credit against future purchases with a modest cash adjustment, since a full cash refund would have strained the company's working capital during a busy contract season and Mathan preferred to spread the cost. Structuring it as a blend rather than a single lump payment let the company absorb the correction without disrupting cash flow during its busiest months of the year.
7. Rewrote the plan document in plain language, replacing the formula-heavy template with worked examples showing exactly how a valuation would be calculated each year, and naming the specific financial statement line items the calculation would draw from so anyone could check it themselves. Naming the exact line items, rather than describing the formula only in the abstract, was what let a manager with no accounting background actually verify a future statement instead of taking it on faith.
8. Built a standing annual statement template tied directly to the company's year-end financials, so future valuations would be produced the same way every year rather than adjusted by hand, with a short plain-language summary attached for each employee explaining what had changed and why. Tying the template directly to the year-end financials removed the manual adjustment step that had let the original errors creep in unnoticed over three separate years.

The outcome

The three managers stayed. That was Mathan's main goal going in, and it held, but it did not come free. Correcting Tarek's position meant acknowledging he had overpaid for a block of shares during the mispriced period, and the settlement Mathan agreed to, a partial share credit plus a modest cash adjustment, cost the company a real amount in the low tens of thousands of dollars. Mathan absorbed that cost personally rather than treating it as a company expense, which mattered a great deal to how the conversation with Tarek actually landed in the room.

Nirosha's position turned out to be worth more than she had been told, and under the corrected formula the company recognized that difference in her ongoing statement rather than paying it out in cash, since her shares remained unsold and there was no immediate liquidity event to trigger a payment. She accepted that outcome once she understood the reasoning, though it took the same transparent meeting to get there that resolved things with Tarek, and she has since said the clearest explanation of the calculation mattered more to her than the number itself.

The rewritten plan document and the new annual statement process are now in their second cycle, and both have produced consistent, reconcilable numbers each time, something none of the three previous cycles had managed. Mathan still calls it a partial win rather than a clean one, since it cost him money out of his own pocket and required an uncomfortable conversation he had not planned for and would not have chosen to have. What he got in exchange was a plan his managers can actually check for themselves against the company's real financial statements, and a set of books that no longer depend on anyone's memory of how last year's spreadsheet happened to be built.

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