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For IPO-bound Alibaba employees, lessons on sudden wealth

Alibaba's upcoming US market debut means employees are due to cash in, and the company is taking steps to help them manage the windfall.

A Chinese Alibaba employee walks through a communal space at the company headquarters in Hangzhou. Peter Parks/AFP/GettyImages

For a humble founder on the verge of the largest tech IPO in history, Jack Ma, founder and executive chairman of Alibaba, has plenty of lessons to share with his soon-to-be wealthy employees.

Ma, a billionaire himself, is urging employees of the largest e-commerce company in China to be smart about their money, according to Reuters. With a potential windfall down the road from a US IPO that Reuters says could soar as high as $41 billion, Alibaba will be home to brand-new overnight millionaires. Earlier estimates put the Alibaba IPO valuation at closer to $20 billion. (By contrast, Facebook's IPO raised $16 billion, the most to date for an Internet company's public offering.)

With the prospect of newly minted wealth on the horizon, Alibaba has, since its early days, hired third-party consultants to train its employees on not only how to manage their money, but to also focus on setting personal goals beyond making money.

"Even back when I joined Alibaba in 2000, the company was very aware of the effect that sudden wealth could have on a company and its employees," says Porter Erisman, a former Alibaba employee and the producer and director of Crocodile in the Yangtze. "We set the company goals in terms of how Alibaba could provide value for the customers and society as a whole, rather than how much money Alibaba brought in."

Erisman says that during his time at Alibaba, the management teams at Tabao, an online shopping site and subsidiary of Alibaba, were rewarded for the number of employment opportunities Taobao created, but punished management for exceeding revenue goals.

"At Alibaba we always believed that money would be one of many results of our efforts but not the goal of our efforts," Erisman adds. "Alibaba was infused with a very strong sense of social responsibility and I would expect that this has been carried forward."

With an eye to social responsibility, Ma has offered several opportunities to employees to cash out their shares over the course of 14 years, once during Yahoo's 2005 deal and another time during the Hong Kong IPO in 2007. This gave employees a chance to cash in their shares to purchase cars and homes for their families.

"The upcoming IPO will simply be another cash-out opportunity among many," says Erisman.

While the Reuters reports states that BMW dealerships have been fielding requests for orange BMWs (Alibaba's corporate color), mainland Chinese aren't generally known to be wasteful, explains Christine Lu, CEO of Affinity China, an invite-only luxury services network for wealthy Chinese.

"They spend what they have, in cash. They don't over-leverage themselves with credit. And many have their net worth tied up in real estate." She added that just 10 percent of Chinese own credit cards.

Current Alibaba employees we've reached out to declined to comment for this article, citing a companywide "quiet period."

After the IPO, emigration to the US?

In Alibaba's prospectus, the company did add a note citing concerns that with 26.7 percent of its shares held by employees, the IPO may trigger the departure of many critical employees from the company at the end of the lockup period, which requires employees to hold their shares for a set duration of time.

Furthermore, money from the New York IPO will be tied up in the US, and this opens up immigration opportunities for Alibaba employees.

"Anyone with enough money to do so in China is thinking of or has already moved part of their lives abroad, because in most cases they're engaging in what I call passport swapping," says Lu.

Passport swapping, Lu explains, is the acquisition of foreign citizenship in an effort to move their assets and family overseas for a better quality of life.

According to a recently released study by the Hurun Research Institute, a research institute for tracking sentiment among high net worth individuals, more than half of high net worth respondents (valued at $6.7 million each on average) chose the United States as their top destination for immigration. Canada, the second most popular choice, was favored by just under a quarter of the study participants.

Countering this, however, is the loyalty of staff to the company -- Erisman believes that employees will stay on with Alibaba and that Alibaba isn't too worried about the issue of employee retention despite the note in the company's prospectus.