Three Things To Keep In Mind When Granting Equity To Employees

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Three Things To Keep In Mind When Granting Equity To Employees

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Be careful handing out your company's equity.

Part of the appeal of working at a startup or emerging company is the ability to earn equity and become an owner.

It's this ownership mentality that drives startup employees to work harder, longer, and smarter than their corporate counterparts. When everyone is invested, teams can move mountains.

With that being said, dealing with startup equity grants can be precarious. Not every employee grasps the value of equity, and not every startup is a path to quick millions. All in all, it's easier to get the equity portion of startup employee compensation wrong than it is to get it right.

Over the past few years at BodeTree, I've had to spend more time thinking about equity plans for our team members and what it means for the organization. I've come to a few key conclusions that I believe will be valuable to any entrepreneur grappling with the topic of equity participation.

Beware companies that hand out options too freely

Despite their ability to change the lives of employees for the better, I've learned that options should still be subjected to a healthy level of skepticism and scrutiny. Companies that hand out options too freely, or in lieu of reasonable cash compensation are likely in dire straits or woefully naive.

One thing I’ve learned about employee compensation is that you always have to have room for people to grow. It doesn’t matter if you’re dealing with your newest intern or a key executive. As soon as people feel like there is no room to grow and earn more, they stagnate.

Founders who give away too many options early on box themselves into a corner, so to speak. Without room to expand and grant more down the road, they inadvertently de-incentivize their team members, leading to problems in the long-term.

Stock options or other forms of equity compensation represent a bond of trust, especially at small startup firms. There must be equal buy-in on both sides of the equation, and leaders should always be sure to keep their powder dry so that they keep employees motivated and optimistic about the future.

Balance is key

As with most things in life, the best approach when dealing with equity compensation is a balanced one. For leaders, it's important be generous without being egregious or stupid. For employees, the key is to find a balance between immediate cash compensation and the potential for a long-term upside.

Business

via Forbes - Entrepreneurs http://ift.tt/dTEDZf

May 17, 2017 at 09:47AM