Setting up (effective) equity plans
The most successful high-growth companies understand the power of equity to attract talent. Equity as a form of compensation can, therefore, be a valuable tactic in reducing the high turnover rates that most startups face. When setting up your equity plan, there are however some important things to consider
- The power of choice: Keep in mind that equity is your most valuable resource - therefore use it wisely. As not every employee understands the value of ESOP (or prefers it), we recommend to not grant ESOP on default but to ask every employee whether they prefer a certain ESOP component as part of their compensation package over a pure cash compensation package or not. In view of this, it is important to define a clear rule how to grant ESOP to employees. See here for more information and helpful resources on how to best set up ESOP programs: 💱 Compensation
- Create resources: Too many companies make a one-off announcement about employees’ options. One should make sure to explain more technical terms related to equity plans carefully and continuously to employees.
- Transparency: Make sure that employees understand the value of ESOP and motivate them by showing that the company’s success is their success - Ledgy’s employee dashboard, for example, provides a clear visual (and their potential returns) for all types of options, warrants, and virtual shares. It allows your employees to self-manage their equity and take true ownership over their participation. They can answer their own questions, making the benefits of commitment clear. Whether you use Ledgy or another Equity Management platform, we think that it is very important to provide transparency and accessibility to employees when it comes to ESOP. Only this way employees can really understand the value behind stock options.