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3 min read
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Scarlett Pierce
Jan 27, 2021 2:35:20 PM

2020 was a challenging year for individuals and businesses alike. Facing the biggest health crisis in a century, companies were forced to make tough decisions to survive.

Many organisations began looking for ways to secure their future, whilst protecting employees and continuing to reward their contributions. In December we surveyed 1200 people to understand the role of equity in this puzzle, and after presenting the results last week, we opened up the conversation to three industry experts.


Jessica Lingwood, Special Projects Lead at Onfido, Joe Adams, a CFO in gaming and startups and ZeShaan Shamsi, Partner at The People Collective, joined us for a fascinating discussion on the topic.

Employers have a responsibility to educate

The need to improve employees’ understanding of equity emerged as a dominant theme. Given the complexity of equity schemes, improved equity education is seen as a relatively simple way of generating greater employee buy-in.

Jessica began by describing how employee understanding of equity varies greatly from individual to individual and often depends on whether an employee has experience working in startups.

“If the value and power of equity are to really hit home, employees need a comprehensive understanding of how equity schemes work,” she said. For Jessica, the burden of responsibility for this education sits with employers.

Joe agreed that education is key and that employers must be honest and transparent with their employees.

“Startups all have ups and downs: 2020 has highlighted that better than anything. Startups are a journey.”

Consequently, Joe went on to say, employers must articulate the risks of equity and warn employees that there will be good days and bad days. If employees focus too much on share price, the highs they experience will be great but the lows can be difficult to overcome.

Want to see the webinar as it happened? Watch the full recording online.

Solutions must account for diverse motivations

Picking up on the idea that employees join startups with varying levels of equity understanding, ZeShaan added that individuals arrive with diverse motivations, too. This can have a significant effect on their perception of equity.

“Different demographics have different motivations. There are individuals who might need more cash flow and some that lean towards more equity.”

For equity schemes to function for diverse organisations, employer solutions must respect and recognise these differences.

“Companies need to be inclusive and consider diversity because it’s not a one-size-fits-all scenario.”

Instead, ZeShaan proposed a sliding scale solution that allows businesses to adapt to individuals’ varying needs. However, this scale needs to be framed within a structured philosophy to ensure balance.

 

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Tax advantages keep the startup scene competitive

From employee motivations, the discussion turned to the rumoured increases to Capital Gains Tax (CGT).

Aware that Rishi Sunak’s Treasury Department had distanced itself from the proposed increases, Jessica argued that a significant increase in CGT would be damaging to the UK startup scene.

“Increasing CGT might make people think twice about joining an early-stage startup. That could be really detrimental to the UK’s entrepreneurial culture and, in a post-Brexit world, the UK needs to stay competitive.”

Joe voiced doubts over whether a Conservative government would increase rates so significantly. He also responded to the suggestions that bosses and executives are liquidating their investments to avoid being hit by the rate hike.

“In terms of people changing their plans to take advantage of lower rates – I think it’s overstated. The main factor when selling shares is not the tax rate but whether someone wants to buy them at the right price.”

Read our December blog post to learn how secondary markets help turn equity from an incentive into a reward.

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Factoring equality into the ownership equation

Finally, our panel moved on to discuss equity’s role in promoting equality.

Taking care to emphasise that he was working in generalities, ZeShaan described how salary negotiations are affected by privilege. Arguing that those in a privileged position often benefit from greater self-confidence and a heightened sense of self-value, he suggested that open-ended negotiations can perpetuate inequality.

Agreeing with this sentiment, Jessica went on to explain how these privileges can be checked.

“Where there’s negotiation involved, you’re not going to have equality. With frameworks, people understand why they’re getting something. You may need a small level of negotiation but having a strict approval process – so there’s a paper trail and accountability when you step outside of the framework – is going to foster a more equal system.”

ZeShaan responded by explaining how such frameworks can help us move towards a more inclusive and equal system.

“If you introduce a framework and there’s a logic to it, and people understand that logic, that’s where you build that trust and respect. That’s what inclusivity is, and that’s the starting point for moving towards parity.”

 

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Thanks once again to each of our wonderful panellists, Joe, ZeShaan and Jessica, we look forward to welcoming you back to the Capdesk stage soon.

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