With COVID-19 seemingly entering its end stage and the economy reopening, many were expecting to slowly get some semblance of normalcy back. But as recent events would show, there’s no assurance that things will easily revert back to what they were before.
In the employment sector, businesses and companies had to deal with the Great Resignation during the height of the pandemic. A recruitment and retention arms race ensued with companies fighting over existing talent in a market that tilted in favor of those with a lot of cash and capital to spare.
Some expected the battle for talent to slow down as the economy gradually reopened and more people were ready to get back to work. Data, however, would show that there has not been a significant decrease in the quit rate in January 2022.
A persistent HR problem has always been attempting to acquire as much human capital as possible while minimizing the costs and depletion of a company’s financial resources. For most companies, cash is finite, and managing it properly is important.
But with the competition for talent not ending anytime soon, not having the needed economic resources could be disastrous for the unprepared. Compensation strategies will play a crucial role in the success of a company in this area. Bootstrapping can only get you so far when you are short on money in the first place.
So a key question that HR practitioners have been struggling to answer is on how precisely to develop an effective compensation strategy with little to no cash. Or is that even possible?
We think it is with equity plans and stock compensation. Here’s why we think it could work.
A major issue with deploying and maintaining employee equity plans is the high legal costs that it often requires. Lawyer fees are definitely not cheap. However, solutions like Upstock have been able to solve this by creating the needed technical and legal infrastructure to be able to deploy and manage equity plans at a considerably lower cost.
Now, companies wanting to issue equity can do so in a matter of minutes by using vetted and standardized legal agreements through services like Upstock. SaaS legal and equity solutions like Upstock are able to offer companies click-to-deploy solutions for issuing equity remotely to workers no matter where they are. This makes equity more accessible to companies as well as to workers, as these platforms are also able to offer individual dashboards for both workers and administrators to track equity earnings.
When you are trying to woo the greatest talents in the world, you need to offer something unique. You have to be different to stand out from the crowd.
There’s no doubt that a big salary offer is very attractive. The problem though is that companies who need to hire the best people are willing to do that too, and as companies try to outbid one another, the process becomes a war of attrition that the less funded companies will not be able to survive. High payroll costs can end up cutting into the company’s spending budgets on the very areas they’re hiring for which can end up negatively affecting the new hires in an entirely different way.
Offering equity, however, gives you a fighting chance. Its main draw is uniqueness since not all founders and business owners are comfortable with giving employees part-ownership over the company itself. If you are a non-tech company, this has a stronger effect as it is almost guaranteed that a majority of your competitors are not willing to provide equity compensation.
An issue that has been brought up against equity compensation is that there’s the possibility that the company’s stock could become worthless. In fact, this has been a major concern for stock options as employees are forced to shell out personal funds to pay the strike price or risk not getting any company shares at all. This essentially compels employees to make a gamble that the company will succeed in the future—a gamble that they have a real possibility of losing.
In response, equity systems have evolved with the introduction of a newer and more effective breed of stock compensation plans like restricted stock units (RSUs) which offer operational flexibility through features like dynamic equity and double-trigger vesting. These ESOPs use a deferred compensation model so that workers receive their stock once certain milestones are met. Often, a portion of the stock will be liquidated to pay for the taxes so that workers do not have to pay any out-of-pocket expenses in order to own their stock. This way workers only have something to gain and don’t have to risk putting their personal cash on the line in order to own company stock that may or may not be worth what they paid for it in the future.
People will work harder and contribute more if they know that their efforts will be proportionately rewarded. Basic salaries, however, can only go so far as to motivate workers and employees to go above and beyond what is necessary.
If the company wants to truly motivate its workforce, a stronger incentive is required. What is needed is a tool that would enable workers and employees to share the same goals and concerns with the company. The best way to do this is by helping workers to think like founders.
Equity plans are able to do this by facilitating the development of true worker-company alignment through a very simple message: if we win, you win.
By tying the company’s interests and motivations with its employees, equity compensation develops understanding and empathy within a corporate setting which results in the creation of a healthy internal culture.
In order to be effective, a compensation strategy must be able to provide a compelling offer of value to both future and existing employees. Equity plans provide a great boost to these strategies by providing something more meaningful than just a simple financial incentive.
Legal solutions like Upstock and Uptoken, for crypto, have made equity and equity-like compensation plans a more viable and accessible compensation option for companies by streamlining the deployment and management process of issuing equity. Our remote-first legal solution now makes issuing equity available across 70+ countries around the world. If your company could benefit from a great implementation of a great worker equity plan, sign up for a demo today!