The slang term “put skin in the game,” usually attributed to Warren Buffett, refers to high ranking members of a company who invest in the company’s stock. Buffett, a noted investor in the United States, attracted fame for becoming one of the wealthiest men in the world using a variety of investment tactics, many of which he shared in books, interviews, and through other media. Buffett’s opinions on investment strategy have been utilized by people all over the world to make savvier and more effective investments.
The theory behind putting skin in the game is that it ensures that the people who run a company also have a direct interest in running the company well. When someone owns stock in a company, she or he wants the company to perform at a high level to generate returns. Having skin in the game is different from having performance-based bonuses and other types of compensation because there will be direct consequences if the value of the company’s stock drops; people will actually lose money if their company does not perform.
In addition, holding stock acts as a vote of confidence. Members of the public are more interested in investing when they see that company employees have enough faith in the company to buy stock in it. This will in turn promote better stock values because more interest in a stock usually increases the value. Stockholders who maintain their stock even through rough patches can also bolster the future of their companies by making it clear that they have confidence that the company will weather the storm.
Some high ranking personnel may accept compensation in the form of stock as a token of faith in the company, and others may purchase stock to get their skin in the game. Care must be taken to avoid situations in which people could be accused of insider trading. In insider trading, people use knowledge which is not public information to make decisions about which stocks to buy and sell and how to balance their portfolios.
This term has also been used more generally to refer to the idea that some sort of investment, whether it is financial, emotional, or otherwise, on the part of people involved in an endeavor can improve the outcome. For example, citizens may be encouraged to get their skin in the game during a financial crisis and make purchases so that the market for consumer goods will rise and promote economic recovery.