Why Equity Matters: The Case for Offering Employee Share Options to Early Employees

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As a startup founder, you will face multiple situations requiring making decisions. One of the most important decisions you'll face is how to compensate your employees. One option often arises by offering equity to your team members. While there are various opinions on the matter, we'll take a closer look at why giving equity to your early employees can be a wise decision in this blog post. We'll explore the benefits for your company and your team members and offer insights to help you make an informed decision that aligns with your values and long-term goals.

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Firstly, let's define what equity is. Equity is a form of ownership in a company. When you offer equity to an employee, you're essentially giving them a stake in the company. This stake can be in the form of employee share options (more here), restricted stock units (RSUs) (more here), or actual shares in the company.

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Now that we understand equity let's explore why it is crucial for your startup's success.

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1. Attracting Top Talent:

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Securing top talent for a startup is often daunting, particularly when considering the hefty salaries experienced professionals command. Established companies with a track record of success are often seen as more appealing career options. However, offering equity can significantly enhance a startup's ability to attract top talent. By providing early employees with a stake in the company's success; they are given a sense of ownership and investment in their work. This motivates them to work harder and stay committed to the company's long-term success, even when the road ahead may be bumpy.

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2. Motivating Your Team:

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Equity is an excellent way to motivate your team. When your employees have equity, they are vested in the company's success. They are more likely to go above and beyond their job responsibilities and take ownership of their work. This ownership mindset can lead to a more motivated and engaged team passionate about the company's success.

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3. Retaining Employees:

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Employee retention is a critical factor in a startup's success. If you can retain your best employees, your company's growth can continue. Equity can be a powerful tool in retaining employees. By giving your early employees equity, you're giving them a reason to stay with the company for the long term. This loyalty can be crucial in the early stages of a startup when stability is essential.

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4. Creating a Positive Culture:

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Multiple pieces of research have shown that offering equity can help create a positive culture within a company. It also showed that employees with a financial stake in their company's success are likely to feel engaged and invested in their work. In fact, companies that offer equity as part of their compensation packages report higher levels of employee satisfaction and retention rates. When your employees feel like they have a stake in the company's success, they are more likely to work collaboratively towards a common goal and achieve it.

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5. Encouraging Intrapreneurship:

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Finally, offering equity can encourage intrapreneurship within your company. Intrapreneurs are employees who act as entrepreneurs within a company, taking ownership of their work and driving innovation. When employees have equity, they are more likely to take ownership of their work and become intrapreneurs, driving innovation and growth for the company. This can lead to new ideas, products, and services that can help your company stay ahead of the competition.

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Offer now or later?

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Providing equity in the form of Employee Share Options often comes with conditions to be met before the employee can exercise and take ownership. These conditions usually include staying with the company for a certain amount of time or achieving specific performance-related goals. This process is known as "vesting," and employees want it to start as soon as possible.

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On the other hand, founders should use equity as a long-term incentive which is a great way to inspire and motivate your team to contribute to the company's success. Most institutional investors know the high impact Employee Share Options have on the overall business value in the long run and have it as a prerequisite to investing.

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Granting equity to your early employees

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As you might have discovered, the old and traditional way is complicated, costly and time-consuming. Therefore, an online platform will help you easily set up and distribute your Employee Share Options.

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At OptIn, we simplify and automate all the processes and legal documents you need to set up your bespoke Employee Share Option Schemes. Also, we provide access to your employees where they can find helpful information and the details of their equity to keep them engaged and motivated for the long run.

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Giving equity to your employees ultimately is your business decision. But you must have all the information possible for all the decisions to be right. This blog post touched on how such a scheme can impact your overall business growth. You can schedule a free consultation with us to learn more about it.

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