Most worker-company relationships are a simple time for money exchange: workers devote their time to creating value and employers pay them for it. This is normal and there’s nothing inherently wrong about this. Over time though, there have been changes to the terms and conditions of this work arrangement. Some of them have been imposed by the government in an attempt to protect workers who it considers as a disadvantaged party in an asymmetric relationship (e.g., through minimum wage laws). Others were necessitated by the market itself as the balance between supply and demand for talent shifted.
But at a fundamental level, the relationship has stayed the same. Workers trade their time for money. After all, workers are not owners of the company so it makes sense that employers pay for their time and efforts only with cash and health benefits.
Or is it?
Compensation and company culture
Sure, there’s nothing wrong with just paying workers for their time and nothing beyond that. That’s what both the worker and company signed up for. The problem with the current model, however, is that it is incapable of developing a healthy company culture that is often needed to achieve long-term success. When people work for the company purely for cash, there is little incentive to devote more than what is required without offering additional compensation. Under this compensation model, it is economical for both sides to offer and provide the minimum.
Companies have unethically tried to win this exchange by characterizing the relationship as familial. In the process, workers feel that they are obliged to offer more value to the “family” without the expectation of additional rewards. This results in a one-sided relationship where only one party is required to make a sacrifice.
This, in turn, creates a disconnect between the goals and motivations of the worker and the company. In other words, a time-for-money compensation model does not create and foster alignment.
For small to mid-sized companies, especially those that are just starting out, alignment is crucial. As you will have to compete with bigger and more established businesses, ensuring that you are able to recruit the right people and maintain internal cohesiveness is important to your company’s survival.
Cash compensates, but equity motivates
It’s now clear that, in terms of nurturing great company culture, pure cash compensation just does not cut it. What is needed is something that will compel the worker to share the same goals and concerns as the company. Something that can make workers think like founders or owners and empathize with them.
This is where equity compensation has proven to be effective. Giving equity is not just providing compensation; it also serves as an offer to workers to make a commitment and take a risk with the company. Equity compensation legally and technically converts workers into part-owners.
With their skin in the game, workers become more willing to go beyond and contribute more for the sake of the company. Workers are no longer just exchanging their time for cash but are now also spending it to build something that they truly believe in. Alignment is able to take place because everyone will be now taking the same risks and sharing the same potential rewards.
This creates a company culture that is able to nurture stronger bonds that are more resistant to adverse changes.
A corporate community
Equity compensation allows the creation of a corporate community that is centered around the common goals and aspirations of business ownership. Equity allows members of the corporate community to tie their self-interest to a common goal that teaches them to celebrate the success of their co-members (as it is also theirs).
This equity-based model is different from the family-type culture which requires people to make a sacrifice on behalf of others without the assurance of a tangible return. In theory and on paper, such a culture is highly desirable and admirable. However, it relies heavily on the altruism of others which does not really fit the corporate environment. Thus, unless it’s a company formed and managed by blood relatives, this type of company culture is extremely difficult to bring about and maintain.
If equity is good for building an external community among fans, clients, and customers, then there’s a stronger reason for it to become an even better tool for the development of an internal community within the company itself. This potency lies in the fact that corporate members are all direct stakeholders who stand to lose or gain more from the company’s failure or success.
Community-building solutions like Upstock (for traditional companies) and Uptoken (for crypto companies) enable companies to create a robust corporate community which—although are not strictly speaking a “family”—are definitely way better and more dedicated than a “team.”
We are here to help you develop and nurture that winning culture that you need within your company. If you want to know more about how to do just that, let us know by reaching out.