Equity Compensation and Employee Training: Enhancing Employee Benefits

Tech startups commonly offer stock options to reward their employees. As more venture-backed companies succeed and employees have more choices, there is a growing belief in owning a piece of the company. But cash alone is not enough. To attract the best employees, companies need to offer them a chance to share in the company's success.

But what happens when employees do not understand how stock options work? Or when they come from backgrounds where financial knowledge is limited? Keep reading this article to learn more.

What Is Equity Compensation?

Equity compensation is a different way for companies to pay their employees. Instead of just salary, they offer company shares. This makes employees feel more connected to the company's success.

In this plan, employees receive shares for free or buy them at a lower price. They can buy them when they leave the company as well. Sometimes, they receive shares instead of a part of their salary.

Explaining Stock Benefits to Your Employees

Whether your company is private or public, it is important to teach your employees about stock benefits. This helps improve their financial knowledge, which is crucial for the success of your stock plan.

For private companies, this is especially important. Many employees may notunderstand how these plans work or have misconceptions about them. One significant factor in a stock plan's success is how many employees participate in it. Even with a great plan, it will not work well when your staff lack awareness, do not understand it, or choose not to join.

Consider your employees and think of the best way to inform them about the plan. For example, putting up posters or sending emails may not be effective for staff working remotely or who do not have regular computer access.

Private Equity Is Not Only for Start-Ups

Giving employees shares is common in start-up companies. In the early days, it can be difficult to find skilled workers. Offering shares can help attract them, especially when the company is new and does not have much pay to offer. But private equity is not limited to start-ups. Some companies choose to stay private for an extended period instead of going public. There are well-known companies that are not listed on the stock exchange as well.

Education Is Important

When a private company goes public, employees with shares often receive monetary benefits. But not all companies want this. Your employees may not be aware of the private market for selling shares. They must be kept informed about the company's journey. Explain how stock awards work and how they can benefit from them. Show them the company's trajectory, how it will achieve its goals, their role in the process, and how they can reap the rewards.

Employees appreciate working for caring employers. With stock awards, employees become shareholders. Be open and transparent with them.

Selling Shares in a Private Company

Be transparent about any restrictions. When your employees receive shares with limitations, such as waiting periods before they can sell or when the company has the right to buy the shares first, clearly communicate this to them.

The market for privately traded stocks is smaller compared to public ones. This means there may be fewer buyers or less information about prices. Selling shares in a private company may be challenging, and employees may need to seek the assistance of a stockbroker.

Selling stocks can have tax implications. Employees must be informed about this and what they need to do.

Aside from this, events like mergers or takeovers can impact stock awards. Employees must be aware of how these events can alter the value or ability to sell their shares.

What about Cash Rewards?

Addressing Employee Turnover

One concern with cash bonuses is that they may lead employees to leave soon after receiving them. This is especially true for skilled workers, who are always in high demand.

Keep Employees with Stock Options

Stock options, which may have different usage or expiration dates, are valuable tools for retaining employees. By offering stock options, you can encourage your staff to be more invested in the company's performance and make them less likely to leave for a quick payout or join competitors.

Information as Inspiration

It is important to clearly explain equity benefits to your employees. Not everyone understands the concept of equity, especially in private companies.

How does it work? What do they stand to gain? What are the costs associated with it? What steps should they take?

Misinformation leads to problems. An informed workforce is more valuable than one that is misinformed. When selecting an equity provider, consider whether they can offer customized communication packages. These packages can be tailored to incorporate your company's branding and can be delivered through various channels, such as mail or in-app tutorials.