There’s no question that talented employees are the backbone behind any thriving business. If you’re a startup business owner, it’s important to capture your workforce’s long-term interests to encourage them to stay and work for the company for a long time. This is where the idea of implementing an employee share scheme comes in.
Primarily, an employee share scheme refers to a process that involves the sharing of company ownership with your employees. It means rewarding one or more key people with equity to encourage loyalty and help manage your workforce by improving their performance. It acts as an incentive or reward to inspire existing employees and attract new talents.
If you’re considering setting up a startup employee share scheme, below are a few tips on how you can nail it:
- Determine Your Vesting Criteria
To successfully implement your employee startup employee share scheme, the first thing you should do is to be clear with your vesting criteria. Typically, vesting refers to a process in which an employee earns certain shares over a period of time and that they own the full amount of equity after the lapse of a specific period.
Thus, if you want to align the company interest and your employees’ self-interest, you need to determine your vesting criteria in a way that your employees will feel in control of the vesting of their shares. For example, you may want to consider time-based vesting since it comes with a presumption that for an employee to be continuously hired by the company, they should do good with their key performance indicators (KPIs).
However, if you need help in applying the appropriate vesting criteria, you can work with companies like Cake Equity to make this happen. They have the necessary skills and experience that can make the setting up of your employee share scheme a breeze.
- Identify the Right Option Exercise Price
If your employee share scheme utilizes share options, then you may have to figure out the right option exercise price to make this approach works. This exercise price usually refers to the amount of money your employees should pay to convert their options into shares.
In most cases, startup businesses that implement an employee share scheme use the market value of a share at the date of the option grant. While this option is commonly adopted, identifying the right option exercise price may have something to do with the employees’ salaries, such as when they’re paid below-market salaries and the promise you give when they joined the company.
So, if you want this scheme to work out best for you and your employees, try to figure out the appropriate exercise price. But, in case you want to show some generosity, you can set a low exercise price to send that kind of message to them.
- Spell Out What Happens to the Shares When Someone Leaves the Company
As a business owner, you certainly want your employee share scheme to be successful. However, in the world of startups, you should understand that employees leaving a company is a fact of life. That being said, it’s best that you know what happens to the shares when a worker leaves and moves on from your company. This is where making good and bad leaver provisions comes into play.
In order to determine who are good and bad leavers, you may consider some factors such as whether the employee is leaving to join a competitor, due to situations beyond your control such as health issues, due to being dismissed for misconduct, and so on. Once you identify your employees based on these categories, it’s time to create provisions for this situation.
For example, if the employee leaving is considered a good leaver, you can come up with a provision stating that they can keep the shares or the company can buy back at a fair market value. However, for the bad leavers, you can make a provision indicating that theirs will be cancelled or redeemed for a minimal consideration.
Given the competition in the online business world, implementing an employee share scheme can be a way to get an edge over your competitors when it comes to recruiting and maintaining employees. It can be an excellent ways to motivate your employees and ensure they’ll not leave the company for no good reason. When they hold an ownership share, they’ll feel more appreciated and valued.
Therefore, to ensure you nail your employee share scheme, follow the tips mentioned above and you’ll be on the right path.
Joan Sanchez has been fascinated with the business arena ever since she was young. Now at twenty-five, Joan exerts a lot of time and effort to learn about the business industry and shares her knowledge to other people through her blog. Joan also submits guest posts to other websites and blogs to expand her reach.
Aside from writing, Joan also loves to cook at home and take care of her pets.