Why Companies Should Give Employee Equity

Why Companies Should Give Employee Equity

Businesses, most especially startups, may not have the budget to onboard a dream team in their early stages. This is why a lot of them often offer employee equity as compensation and incentive instead of salary to their first hires. More so, some companies also choose to offer this after a certain period of time.

Either way, this type of compensation and incentive program is something to consider in your organization. Learn more about the ins and outs through this blog!

What is Employee Equity?

Employee equity refers to the various types of equity or stock issued to employees. This is offered as compensation or even as incentive.

Moreover, check to the following lists and guides for a better understanding of how an employee equity program works.

Types of employee equity stock

  1. Common stock: This is primarily for employees. Common stock doesn’t have additional rights or liquidation preference, so it’s basically seen as less valuable compared to the Preferred stock.
  2. Preferred stock: In contrast, this type of stock is sold to investors. With additional rights attached to it, those who own this stock are typically paid out before anyone else. 

Equity options for employees

  1. Stock options: an option to buy or sell company shares at a discounted or stated fixed price
  2. Stock warrants: similar with stock options but the difference is that stock warrants give your employees the right to purchase stocks from your company
  3. Stock grants: an amount of stocks that you, as an employer, grant to the employee as a form of compensation

Vesting terms

Vesting refers to the first date an employee can obtain their stocks. With this, the vesting period now pertains to the time period before an employee can fully exercise their stock options or warrants. During this period, the employee is entitled to receive a portion of the stocks every month or quarter, which becomes fully vested after the vesting date.

Take note that identifying and planning the vesting schedule for your startup depends on your goals. This differs between companies, so it’s best for you to seek legal and accounting advice as well.

Why Give Employee Equity?

Let’s look at some of the top reasons:

1. Helps attract new talent

Companies also leverage employee equity programs as a way to stand out from other job offers. 

2. Increases staff loyalty

They have the opportunity to align their interests to that of the business, thus contributing to a long-term sustainability plan.

3. Boosts staff morale

Since employees are directly invested in the company’s future, they’re more likely to be productive and motivated to fulfill their role.

Hiring the Right Talents is Crucial

Ultimately, if you’re thinking about offering equity compensation as you start or manage your business, finding and hiring exceptional candidates is key. These employees will then hold certain rights in your business once their stocks are vested, so make sure these future stockholders can do more good than harm to your organization.

Look for candidates who are self-sufficient, and really want to work for a company like yours. Also, hire talents who can fill gaps you can’t fill, and see how they can add value to the business. These factors can help you define your strategies in offering employee equity and using this to your advantage.

With that, do you need help in finding your next quality hire? Partner with us today! As the top job posting and recruitment site in the Philippines, we aim to assist employers like you to discover and build your dream team.

Hire better with Bossjob now and see how you can take your business to greater heights!

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