Performance Share Units in Fintech: Aligning Incentives for Growth‍

Casey Fenton

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January 26, 2024

A research finding reported by the Harvard Business Review reveals a direct correlation between company performance and employee contributions. Companies that effectively align employee incentives with their objectives not only achieve better results but also boast higher levels of innovation and motivation among their staff. 

Now, in the fiercely competitive world of fintech, where every edge counts, how can you ensure your team's goals align with your company's vision? The answer might just lie in the Performance Share Units (PSUs). 

Performance Share Units (PSUs) are an innovative solution to this very challenge. Think of PSUs as a win-win agreement, where employees are rewarded for hitting performance targets that align directly with company growth. The following insights will help you leverage PSUs to incentivize your team and supercharge your fintech company's growth.

Understanding Performance Share Units (PSUs)

PSUs are a form of compensation that companies grant to their employees. Unlike regular salaries, PSUs are contingent; they depend on the company achieving specific performance targets. These units, once vested, convert into shares of the company's stock. In essence, they offer a promise: "Help the company succeed in this and that way, and you'll be rewarded with a share of that success."

Why Not Just Cash Bonuses?

You might be wondering: why not just reward employees with cash bonuses based on performance? Here's the distinction. Cash bonuses, while undoubtedly appreciated, offer a one-time reward. PSUs, on the other hand, tie an employee's future wealth to the company's future success. By granting PSUs, companies are giving employees a stake in the future upside, fostering a sense of ownership and long-term commitment.

The Power of Deferred Gratification

One of the underlying psychological principles that make PSUs effective is the concept of deferred gratification. The idea here is that people are often willing to forgo an immediate reward for a more significant, future benefit, especially if they believe their efforts can influence the outcome. PSUs capitalize on this mindset. By setting clear performance targets, they give employees a roadmap and the motivation to achieve long-term goals.

Flexibility in Structure

Performance Share Units, by design, offer an incredible degree of flexibility. This adaptability isn't just a bonus feature—it's one of the main reasons PSUs have become so popular in the realm of employee compensation. Here’s how:

1. Aligning with Corporate Objectives

No two companies have the same set of goals. While one fintech startup might prioritize user acquisition for its new app, another might emphasize technological advancements or global expansion. PSUs can be crafted to reflect any such objective. By tying vesting criteria directly to these unique goals, companies ensure that employees' efforts are laser-focused on what truly matters.

2. Varied Performance Metrics

Beyond the broad objectives, the metrics used for PSU programs can be incredibly diverse. Some companies might choose straightforward financial metrics like revenue or profit margins. Others might opt for customer-oriented metrics such as Net Promoter Scores or customer retention rates. The beauty of PSUs is that they can be tailored to multiple metrics simultaneously, creating a comprehensive view of company health and progress.

3. Time-Based Vesting vs. Milestone-Based Vesting

While traditional stock options often come with time-based vesting (say, over a period of 4 years), PSUs allow for milestone-based vesting. This means that if employees achieve the set targets (be it revenue, customer numbers, or other metrics) ahead of time, they could enjoy the benefits sooner. This flexibility can be a strong motivating factor for outperformance.

4. Customizing Payout Structures

While the general principle is that PSUs convert into company shares upon vesting, the specifics of the payout can vary. Companies can choose to offer a combination of stock and cash, depending on their liquidity position and strategic goals. Such customizability ensures that the reward system remains sustainable and in line with a company's financial planning.

5. Scaling with Company Growth

A small startup and a well-established fintech giant will have different compensation needs and capabilities. The flexible nature of PSUs means they can be designed to scale. As the company grows and evolves, the PSU program can be recalibrated to reflect new challenges, opportunities, and market realities.

How PSUs Aid in Fintech Company Growth

In an industry as dynamic and rapidly evolving as fintech, tools, and tactics that harness growth are invaluable. PSUs, with their unique blend of incentives, play a pivotal role in guiding companies toward exponential growth. But how exactly do they work their magic?

Cultivating a Forward-Thinking Mindset

In fintech, stagnation is not an option. With the competition a mere click away, companies have to be in perpetual innovation mode. PSUs inherently encourage this. Employees, knowing that their rewards are tied to future outcomes, are more likely to think ahead, strategize for the long term, and adopt a proactive approach.

Boosting Employee Retention in a Competitive Market

Talent wars in fintech are fierce. With tech giants and startups vying for the same pool of talent, how can companies ensure their top players stay? PSUs provide a compelling answer. By offering a stake in the company's future, employees have a vested interest (literally) to remain and contribute to its success.

Amplifying Collaboration Across Teams

The brilliance of fintech lies in its interdisciplinary nature—where finance meets technology. For a fintech company to truly thrive, its tech and finance teams need to be in seamless sync. PSUs, with their company-wide goals, naturally foster inter-departmental collaboration. Everyone's aiming for the same target, after all.

Encouraging Risk-Taking and Innovation

PSUs are essentially a bet on the future. They signal to employees that the company values and rewards forward-thinking innovation. As a result, employees might be more inclined to voice novel ideas, experiment with cutting-edge technologies, or propose unconventional solutions. This culture of innovation can be the difference between a fintech company that leads and one that follows.

Aligning Individual Success with Company Success

Perhaps the most profound impact of PSUs is the alignment they create. When an individual's financial success is interwoven with the company's performance, it establishes a profound sense of shared destiny. Employees begin to see the bigger picture, understanding how their daily tasks contribute to broader company goals. This alignment not only aids in immediate growth but ensures sustainability in the long run.

How-Tos for Designing a PSU Program Tailored for Company Growth

As the fintech sector becomes more complex and competitive, a well-structured PSU program can be the linchpin for success. But how do you create one that’s in sync with your growth trajectory? Below are the steps to design a PSU program that propels your fintech forward.

1. Define Clear Objectives

It’s imperative to pinpoint what you hope to achieve with your PSU program. Are you looking to attract new talent, retain top performers, foster innovation, or a blend of these? Your objectives will be the compass guiding the finer aspects of your program.

2. Choose Relevant Performance Metrics

A PSU program is only as effective as the metrics it's built upon. While financial figures like revenue and EBITDA are common, don’t shy away from fintech-specific metrics such as user growth rate, transaction volume, or platform uptime. The key is to select metrics that directly correlate with your company’s vision of growth.

3. Consult Stakeholders

Engage with various stakeholders— from department heads to frontline employees. Their feedback can provide invaluable insights into which metrics resonate most with those executing on the ground. Their buy-in will also be critical for the program’s success.

4. Establish a Vesting Schedule

Determine whether you’ll be using a traditional time-based vesting schedule, a milestone-based one, or a hybrid. For fast-paced fintech companies, milestone-based vesting can be particularly motivating, rewarding employees when key growth targets are hit.

5. Set Competitive Payouts

In the talent-hungry world of fintech, your PSU program needs to stand out. Research what competitors and industry leaders offer. Ensure your payouts are not just competitive but also reflect the value and impact an employee brings to the table.

6. Offer Periodic Reviews and Adjustments

The fintech industry is ever-evolving. What’s relevant today might be obsolete tomorrow. Hence, periodically reviewing and recalibrating your PSU program is essential. Adjust performance metrics, vesting schedules, or payout amounts as your company grows and the industry landscape shifts.

7. Communicate Clearly and Transparently

Once your PSU program is in place, transparent communication becomes paramount. Ensure every employee understands how the program works, how it benefits them, and how it ties into the broader company vision. A well-understood PSU program is far more likely to be a motivating one.

Case Studies of Successful PSU Programs in Fintech

In the fintech space, several industry leaders have leveraged performance-based incentives like PSUs to drive growth, retain talent, and foster innovation. Here are some illustrative examples:

1. Square

Founded by Jack Dorsey and Jim McKelvey, Square revolutionized the world of mobile payments. As the company grew, it recognized the importance of retaining its top talent. While specific details of Square's compensation structure are private, the company's approach to equity grants, which is believed to include PSUs, likely played a role in ensuring that its key players remained motivated to contribute to its incredible growth trajectory.

2. Adyen

Adyen, a global payment company, has been a rising star in the fintech space. As a European fintech giant, Adyen's strategic use of equity-based incentives (potentially including PSUs) has been instrumental in not just attracting top talent but also ensuring that the goals of the employees are perfectly aligned with the company’s long-term vision. This alignment is evident in Adyen's innovative solutions and steady growth rate.

3. Stripe

Stripe, known for simplifying online payments for businesses, is another classic example. As one of the highest-valued private fintech companies in the world, Stripe has utilized equity compensation to attract and motivate its workforce. Such incentives ensure that as Stripe continues its global expansion and diversification, its team remains deeply invested in the company's success.

How RSUs Resemble PSUs as Performance-Based Incentives

In the employee compensation market of fintech, both Restricted Stock Units (RSUs) and Performance Share Units (PSUs) play vital roles. Both serve to align the interests of employees with the long-term growth and success of the company.

RSUs typically vest over a predetermined schedule, regardless of the company's performance metrics. They offer stability and predictability, making them an attractive proposition for potential hires. By guaranteeing a form of equity over time, RSUs encourage employees to remain with the company and contribute consistently.

On the other hand, PSUs add another layer by tying the vesting of shares to the achievement of specific performance goals. This ensures that employees are not just consistent in their contributions but are also driven to achieve superior results that align with the company's growth targets.

While RSUs and PSUs have their unique characteristics, their primary resemblance lies in their objective: to synchronize employee efforts with company success. Both serve as powerful tools for fintech companies, where the competition for talent is fierce and the need for alignment is paramount. By offering a stake in the company's future, whether through RSUs or PSUs, fintech firms ensure that their teams are deeply invested in the journey of growth and innovation.

Want a demo of how RSUs can change your equity compensation game? Reach out to Upstock today.

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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