Share options. It seems like everybody is talking about them these days. Technology is taking over our lives, and as more and more tech companies enter the market, the competition for revenue and employees is increasing. This means that share options \u2013 already the tech industry\u2019s favourite benefit \u2013 are increasing in popularity as well.<\/p>\n
This has been the case ever since the technology boom started. Brand new technology makes the old stuff redundant \u2013 but the old stuff has had years to build a fortune and a war-chest. The new stuff might be a great idea and the next big thing, but for right now it\u2019s still a small thing. They don\u2019t have as much money to offer employees, and they have razor-thin margins already \u2013 how can they possibly compete with the old stuff?<\/p>\n
Simple. Start a staff equity scheme and roll out employee share options. And the best part is \u2013 they\u2019re not just for tech companies or small businesses. Employee share options can help any business thrive.<\/p>\n
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Employee share options are a way to offer your employees a portion of your company\u2019s potential. You offer your employees a grant, which gives them the option to purchase a certain amount of shares in your company, for a certain price. Let\u2019s say, \u20ac1 per share. Generally, the employees have to wait a certain amount of time (vesting) before they can exercise their options. Let’s say, they have to wait three years.<\/p>\n
You\u2019re a startup, with a revolutionary idea \u2013 three years later, the share price is \u20ac10 per share. The employee still only has to pay \u20ac1, and they can sell them for the full price, \u20ac10. That’s a lot of profit. Besides, employees usually don\u2019t have to put down their own money to pay for the shares \u2013 they pay the cost out of their profits from the sale.<\/p>\n
That\u2019s it. It\u2019s a pretty simple idea when it comes down to it. Let\u2019s take a look at why they are so important.<\/p>\n
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This is a phrase that is tossed around a lot, but it\u2019s usually left to people\u2019s imaginations as to why it is such an important benefit of staff equity schemes.\u00a0<\/p>\n
Employee share options mean that your employees will think like owners. After all, they are owners \u2013 even if their options haven\u2019t been vested yet, they are still going to earn a portion of the company\u2019s potential. Just like you \u2013 like managers and owners \u2013 the better the company does, the greater their reward. They are going to be far more likely to weigh their decisions according to what will help the company best.<\/p>\n
Imagine two employees. One has share options, her name is Mary. The other does not, his name is John. Both are accountants. One day, one of their colleagues comes up with a better way to input data \u2013 it\u2019s more manual, and is a bit harder to do, but it’s more than manageable and it cuts costs significantly. So, it\u2019s better for the company but it takes more work. Which employee do you think is more likely to implement the new process, Mary or John?<\/p>\n
Mary, of course. You could issue a memo, and make the new process mandatory, but how often does that really influence employee behaviour? More importantly, how often does it influence behaviour without <\/em>grumbling? Mary wants to do it, because the better the company bottom line, the better value her share options are. That\u2019s why share options are so beneficial \u2013 they\u2019re positive reinforcement.<\/p>\n \u00a0<\/p>\n That’s not the only benefit, though \u2013 not only will your employees be thinking like owners, but studies have shown that employee ownership is linked to better employee morale and motivation, all the way to reduced absenteeism.<\/p>\n Share options are also a great way to improve employee retention. Most share options vest over a number of years \u2013 in most plans, employees receive a part of the grant each year over a number of years. (For example, they receive a third of their grant each year for three years.) This gives the employees a great incentive to stay with the company for longer \u2013 if they leave early, then they won\u2019t receive the full value of their award. At an up-and-coming startup, that could mean leaving a lot of money on the table.<\/p>\n Douglas Kruse, a professor at the Rutgers School of Management and Labor Relations, presented testimony to the Subcommittee on Employer-Employee Relations, reviewing numerous empirical studies on employee ownership firms. He found that \u2018Employee ownership is associated with greater employment stability, which does not come at the expense of lower efficiency\u2019. According to Kruse, it is also linked to higher rates of firm survival.<\/p>\n In conclusion, employee share options are a great way to make your company thrive. You make your employees happier, and they work harder and with an ownership-focused mindset. And it\u2019s a feedback loop. The better your employees work, the more your company grows, which means the employees make more money and work even better, and so on.<\/p>\n But like any plan, you need to make sure you have the best staff equity scheme set up \u2013 which means you need the best equity compensation software, as well as the support staff to launch your plan and keep it running smoothly. At Global Shares, we have 14 years of award-winning equity compensation management experience.<\/p>\n Contact us for a no-commitment demo today.<\/p>\n \u00a0<\/p>\nMore benefits<\/h2>\n