How Stock Options Can Help Your Startup Attract and Retain Top TalentImage credit: Shutterstock

DAVID STACK

CONTRIBUTOR

CFO of Qstream  

228Shares

JANUARY 1, 2016

Twitter CEO Jack Dorsey’s recent announcement on giving 1 percent of the company to

his employees’ equity pool signals a rising trend among tech startups. Building stock

options into compensation packages can be a win-win, because it aligns employees with

management and the board of directors.

Empowering your employees with a sense of ownership provides a great incentive to go

the extra mile. Partial owners of a company have a vested interest not only in their own

performance, but in the long-term success of the whole company. This mindset goes a

long way in combating employee churn, helping you to not only attract top talent -- but

also to hold onto it. Here are five factors to consider when stock options are on the table.

Related: 10 Lessons Stock Trading Teaches About Success and Failure

1. Align your mission.Providing equity to all employees helps to align everyone with the company’s mission

and helps to encourage everyone to think more like active owners instead of passive

employees. If employees are focused not only on a paycheck but also the future success

of your startup, they’ll be more productive and focused on enhancing the company.

Making everyone a partial owner can boost morale and inspire longevity and career

growth within the company. It also fosters a collaborative culture. Because the value of

stock options depend less on any one person’s efforts and more on leveraging the entire

team to succeed, teamwork is in everyone’s best interest.

2. Provide startup incentive.Stock options are an important part of total compensation for employees who choose to

join a startup. This should be an incredibly useful element used to recruit some of the best

and brightest employees, which can add a lot of value to your organization. Stock

compensation can also sway a potential employee to choose your company over one that

might be offering equal pay but lesser or no stock options.

Communicate your stock options to potential hires, and also be sure to convey that your

company mission is aligned around teamwork, collaboration and mutual success. These

qualities are often what compel millennials to work at startups rather than larger, more

hierarchical companies. Stock options are a good draw, but your company culture could

be the determining factor when it comes down to weighing multiple offers.

Related: 4 Ways Stock-Market Volatility Affects Every Business

3. Discuss valuation.In order for new and existing employees to be able to assess the value related to stock

options, it is important to convey key stats related to equity. An appropriate time to

update employees can be after a financing round when valuation and total shares can be

discussed. This also helps foster a culture of transparency and teamwork. Keeping every

employee in the loop about your company’s financial health is a great way to practice

what you’re preaching when it comes to fostering collaboration.

4. Educate employees.Education is important so that employees understand all aspects related to stock options,

which includes the tax impact related to exercising stock options. Bring in an equity or

tax expert to meet with your employees, so they feel confident in knowing the nitty gritty

about how vesting works and how to manage their stock options. An outside perspective

will also signal that you’re not trying to convince anyone to take your options, but rather

than your options are objectively the best option.

5. Reward performance.Stock options are also an incredibly useful tool to help reward high performers. Providing

additional stock options to employees who have recently been promoted or contributed to

a very successful project is a fantastic way to provide recognition and also increase

retention of those employees.

Making these incentives team oriented is another great motivator to break sales records,

launch a new iteration of your product and so on. Establishing clear goals that are then

rewarded with more stock options when they are achieved is a meaningful way to reward

hard work while staying true to your company culture.

Related: 3 Tips on How to Trade Stocks Without Spending a Penny

Small Business Funding

Get the working capital your business needs from Entrepreneur Lending, powered by CAN Capital.Learn More »

DAVID STACK

 

   David Stack is an entrepreneur and finance executive based primarily in Boston. He is the CFO of Qstream, a board director at BrandYourself and the former CFO at Hubspot.

Source: https://www.entrepreneur.com/article/253438