Why, in a time of worldwide uncertainty, workers and employees are taking massive risks in quitting their jobs?
If you are a business owner, you may have noticed an increase in quit rate and job seekers leading to an increase in job openings, according to labor statistics and labor turnover survey from institutions such as the Pew research center, Bureau of Labor Statistics, Harvard Business Review, and Federal Reserve Bank. Some affected industries include business administration, accommodation, and food services.
We are in the middle of something called the Great Resignation. But don’t fear because there is a simple and powerful way to turn the tables. Plan for the future success of your company with a great worker and community equity plan. Worker equity is a transformative tool that shows new hires that they are part of the success team and that when the company wins, they, too, will win. The Great Resignation highlighted employees' desires for better work-life balance and meaningful compensation. Leveraging company equity, such as stock options or shares, provides employees a stake in the company's future. This not only offers potentially lucrative financial incentives as the company grows but also fosters a sense of ownership and alignment with the company's vision. By offering equity, employers can attract and retain top talent who might be seeking greater financial growth opportunities and a deeper connection to their workplace, thereby mitigating the challenges posed by the Great Resignation.
In this article, you’ll learn more about these things:
- What the great resignation is
- Why it’s happening in the labor market
- What companies and businesses can do
- How Upstock promotes worker satisfaction.
What is the great resignation?
At the height of the COVID 19 pandemic, something peculiar and unexpected happened. In the United States, there's a record number of around 11.5 million workers quitting their jobs in the middle of this year from April to July. This occurred when, just a year ago, companies and businesses were forced to decrease their labor force as the world fell into an economic downturn.
High layoffs and unemployment rates generally lead to lower turnover rates. Quitting your current job during a recession usually means finding a new job will be extremely difficult. Since normally people look towards maintaining financial security and stability during times of uncertainty, resigning from a job and risking being unemployed for a long time would logically not be a popular choice.
Historical trends show that during times of economic instability, resignation rates are usually lower while the labor force participation rate is typically high. This is understandable as fewer workers are willing to take the risk of not finding another job if ever they do decide to leave their current work for whatever reason.
But the employment trend that has developed over the last two years since the start of the pandemic has not aligned with these predictions and expectations. Workers, seemingly unfazed, began to leave their jobs in droves in what is now known as the “Big Quit” or the “Great Resignation.”
What caused this paradoxical economic behavior?
Why this is happening
Different studies point towards various causes, but they share a common theme: worker dissatisfaction.
Many workers were dissatisfied with how their employers handled the pandemic, with some forced to report for work on-site despite the health hazards. There was also dissatisfaction with the heavier workload under the new remote arrangements. Dissatisfaction with the loss of work-life balance or the erasure of boundaries between home and the office was likewise common. Others were dissatisfied with how their life, in general, was headed.
The pandemic-related movement restrictions meant that people had more time to stay at home and think about their present condition and the future they want for themselves, especially in terms of their employment and career path. Parents with children also had to adjust to their children’s online learning programs with no childcare options while learning how to adjust to the new pandemic lifestyle.
With so much changing in their home and work lives, this meant having the opportunity for clarity, self-awareness, and a new perspective. With a decrease in social outings and team-building opportunities, many workers began to notice that employers were either doing things wrong or not doing enough to help or support them during these trying times.
What companies and businesses can do
A high turnover rate means the workers and employers are out of alignment and no longer moving towards similar goals and outcomes. With no shared goal or mission between workers and their companies, there is no meaningful opportunity for empathy and collaboration. Therefore, a realignment is needed so that everyone will be on the same page.
We believe that realignment leads to higher worker retention. Once a company or organization is aligned, the direction becomes clearer, and the movement toward common goals and objectives is much smoother. An aligned employee believes in the company’s mission and vision and wants to help achieve it and make it a reality. Thus, they are less likely to abandon it.
Determining how to exactly do this though, may be difficult, especially if you have no idea what is causing the dissatisfaction in the first place. Once you can pinpoint the triggers underlying issues of worker dissatisfaction, then managers can enact meaningful change to remedy the situation.
Using company equity as a retention strategy
Utilizing company equity as a retention strategy serves as a powerful motivator for employees to invest in long-term success. By aligning personal financial outcomes with company performance, equity incentives foster a culture of ownership and loyalty. This strategy not only attracts top talent but also mitigates turnover, creating a win-win situation for both the company and its employees.
Using company equity as a retention strategy offers several benefits for a company:
- Employee Alignment: Equity grants, like stock options or restricted stock units, align employees' interests with those of shareholders. This means they're more likely to work in ways that increase company value.
- Long-term Commitment: Equity often vests over a set period (e.g., four years). This incentivizes employees to stay with the company longer to fully benefit from their equity grants.
- Competitive Advantage: Offering equity can differentiate a company in a competitive job market, helping to attract and retain top talent.
- Reduced Cash Outflow: Equity can supplement salaries, allowing companies, especially startups, to conserve cash while still providing competitive compensation packages.
- Sense of Ownership: Equity gives employees a tangible stake in the company's future. This can foster a sense of belonging, motivation, and a more entrepreneurial mindset.
- Performance Incentive: Some equity structures are performance-based, motivating employees to reach targets that trigger equity rewards.
- Cultural Cohesion: A shared stake in the company can foster a collaborative culture where everyone feels they are working towards a common goal.
In essence, equity-based compensation helps create an environment where employees are motivated to contribute to the company's long-term success, benefiting both individuals and the organization.
Designing an effective equity program
Equity programs are essential tools for incentivizing and retaining talent, especially in competitive industries. Here’s how to design one that is both fair and motivating:
Establishing Clear Eligibility Criteria for Equity Grants
- Role Relevance: Not all positions may warrant equity. Determine which roles are strategic and contribute directly to company growth. Typically, higher-level roles or roles in pivotal departments (e.g., engineering in a tech startup) might be prioritized.
- Tenure: Consider granting equity based on how long an employee has been with the company. Longer tenured employees might receive more equity due to their sustained commitment.
- Performance Metrics: Base equity grants on measurable performance indicators. This ensures that those contributing most to the company's success are adequately rewarded.
- Potential and Future Value: Recognize employees who may not currently be in strategic roles but have the potential for significant future contributions.
Determining the Appropriate Amount of Equity to Offer Employees
- Market Benchmarks: Research what similar companies in your industry and region are offering. Platforms like PitchBook or compensation surveys can provide insights.
- Employee Value: Gauge the potential impact of an employee's role on the company’s success. Key roles may command a higher equity percentage.
- Company Stage: Early-stage startups might offer more equity due to higher risk and lower salaries. As the company grows and stabilizes, the equity offered might decrease.
- Vesting Period: A typical vesting schedule spans four years with a one-year cliff. Adjust the equity amount based on how long you expect employees to stay and contribute.
An effective equity program requires thoughtful calibration of eligibility criteria and the amount offered. Regularly review and adjust the program to ensure it remains competitive and aligns with company goals.
How Upstock promotes worker satisfaction
In the constant struggle for employee retention, you will need a reliable weapon to fight the looming specter of resignation. To achieve the goal of retaining and aligning workers and employees, you will have to address the main causes of dissatisfaction among them.
There are, of course, many different reasons which may require more precise solutions. But we also have a simple suggestion—offer your workers and employees a future stake in the company so that they will think and act like founders or owners.
Equity compensation facilitates worker-company alignment and rallies both employees and employers alike toward the achievement of shared success. How and when you offer equity must be done carefully, as bad equity plans may demotivate workers and may create even more dissatisfaction.
Upstock allows you to avoid these pitfalls and helps you address the underlying factors of worker dissatisfaction through the following defining features:
- Incentivization of loyalty: We offer equity plans that utilize restricted stock units (RSUs) which only vest after a worker renders professional and business services for a certain period of time and/or upon a landmark success event for the company such as an IPO. This encourages workers to stay longer with the company and to root for its success.
- Global and remote-first: Our equity plans were crafted with global teams and remote-first companies in mind. Lawyers and experts have vetted Upstock’s equity plans to ensure that they are valid in 70+ countries, allowing you to issue equity in most parts of the world. All legal documents, logging of hours or work completed, and tracking of equity is handled through an online dashboard.
- Trust-based time tracking: No invasive time tracking software. Workers log their own time and earn their equity. Tasks may also be set up for workers to accomplish some equity points. Aligning workers requires trust, and you can’t do this by micromanaging and tracking everything they do. Alternatively, a company accountant or manager can be put in charge of entering time monthly equity hours. This is a good option for salaried workers that do not work hourly or performance-task-based schedules.
- Transparency: Upstock allows you to show the company's capitalization and how the worker equity pool fits within the overall capital structure. Being transparent allows you to build the trust needed to retain your best employees. Some teams choose to keep the activities of pool members private, while others choose to be fully transparent for a more open and sometimes competitive atmosphere.
- Visual motivation: Equity is just a bunch of hard-to-understand legal documents and papers for your workers. It is hard to provide an easy way to explain and quantify the value of their equity on any given day. Our app addresses this issue by featuring a motivational dashboard that shows the estimated value of the equity earned. A worker seeing their equity stake increase every month, or with each task completed, can immediately see the value they will earn when a company is successful. This gives team members a stronger reason not to quit, as they can easily see and believe in the long-term value of their work and will be motivated to continue gaining more and seeing that value increase over time.
Worker retention is indeed a nuanced subject that requires a multi-pronged approach for it to be effectively addressed. Numerous options are available, but we believe that having a good equity plan is one of the better as it facilitates genuine alignment between workers and the company. Indeed, developing and nurturing alignment can comfortably fit within any strategy designed to combat high resignation and low turnover rates.
Whatever the type, size, or stage your company is in, Upstock can help you achieve your employee retention goals with high-quality equity plans. Feel free to reach out, as we’d be happy to discuss this further with you.
1. How does offering company equity help address employee turnover?
Offering company equity incentivizes employees to stay longer, as they stand to benefit from the company's future success. It fosters loyalty and alignment with company goals, reducing turnover.
2. What factors should be considered when designing an effective equity program?
When designing an equity program, consider role relevance, tenure, market benchmarks, company stage, performance metrics, and the appropriate vesting schedule.
3. Can employees sell their vested stock options immediately after exercising them?
Yes, employees can sell vested stock options post-exercise, but the timing might be constrained by company policies, lock-up periods, or insider trading regulations.
4. Are there any tax advantages associated with receiving company equity?
Yes, certain types of equity grants, like Incentive Stock Options (ISOs), offer tax advantages upon exercising, but tax implications vary by country and individual circumstances.