Kirsten Prost is VP at Tercera and supports the procurement, execution and monitoring of investments in third-wave service companies.
In war Share payments are more important than ever for talented individuals, but this is not the simplest term, especially in privately financed companies.
Equity is not a new concept. Public and private companies have used stock options (or RSUs) to recruit, motivate, and retain talent for decades. However, share-based compensation has grown in importance when it comes to hiring, retaining, and targeting incentives for all employees, not just executives.
This happens for several reasons:
- A global shortage of technical specialists: Candidates with sought-after skills now receive several offers and can practically name their price. Nowadays this price mostly includes some kind of stock component.
- Wage inflation: Labor shortages and market dynamics are causing significant wage inflation. Companies are looking for ways to increase their total compensation while reserving cash at the same time. Equity is one way to do this.
- A growing focus on private reviews: The number of companies achieving unicorn status is increasing. According to CB Insights, over 900 companies worldwide have achieved unicorn status, and more than 450 unicorns were minted in 2021 alone, up from the previous high of 111 in 2019.
- Transparency around the remuneration: Compensation data are accessible. In the past, companies like Glassdoor have provided solid salary data for more mature companies. Now companies like AngelList offer both Salary and equity benchmarking for startups.
- Expectations: More than half (53%) of millennials say it Equity compensation was the main reason or one of the main reasons they took their job.
Not only do leaders need to better understand and articulate why justice is important, but also how it is determined. So let’s start at the beginning.
An ownership mentality is good for both business and morale, which is why many founders choose to allocate some level of equity (even a small fraction) over and above the leadership role. Managers may have the vision, but they need a team to implement and concretise their ideas.
Think strategically, think ahead, and communicate – make sure you are offering the right stock allocation for the right strategic reasons and achieving the right goals.
Design of your share program
Once you’ve made that decision, stock options will become part of Your total bonus package, it is time to define your philosophy and design your share program.
Dimensioning of the equity pool
First, you need to determine the size of your employee option pool. You should form your thoughts before speaking with investors that may require the creation of a larger pool of options than would be required if your proposed pool is separated from your hiring plan.
