In the private business world, the reasons for giving equity to employees are more than thoroughly discussed among founders, investors, and managers alike. But how often do you get to hear your employees’ thoughts on those grants you issued them? Are you making the most out of your option pool to incentivise staff, or are you just giving away equity with little or no impact?
We caught up with... let's call him Ben, a current option grant holder, to get an honest account of how an average grant is issued and communicated to employees, and what determines their effect on employee performance and loyalty.
Can you tell us a bit about your current position and the option grant you’ve received?
I am a frontend engineer, and I have been at my current job for two years. I received my options when I was hired - it was part of my contract. This is a common practice at our company, everyone received options when they were hired, as a way to motivate them. So far, I have personally not exercised any of my options.
At the time you received your grant, were you familiar with options? For example, had you been granted equity by a previous employer?
No, I’ve never been granted options before - I've been self-employed my whole life before this job, so I’ve dealt with options from the perspective of owning a company rather than as an employee. But I never had a company that sold, so I didn’t really know much. I had to read up quite a lot on the subject.
Did your company take any steps to educate you about your grant - eg. potential risks and benefits, the order in which stakeholders are compensated in case of an exit, etc.?
Yes, I had conversations with the founders in order to understand the contracts. I had to google quite a lot of legal words to make sense of everything, trigger clauses, etc.. Legal texts are hard to understand, and I think it’s fair to say that the founders are no experts in this either.
What about your contract? Were you able to understand it fully and/or negotiate on it?
Short answer; No. I’d say I was only able to understand parts of the contract . Because of all the legal language, it took me ages just to read through three sentences. It’d be cool if there was a ELI5 (Explain Like I’m 5) version of the contract that was easier to understand. But I focused on the most important parts, and I did negotiate on those. Probably the most important thing was the section on triggers in the contract, because as an employee you don’t really have much of a say when a company gets bought, and things can take many twists and turns in these situations.
Since you had a certain understanding of option grants, did your colleagues seek your guidance about their grants?
To some extent, yes. Since I’m involved in the hiring to the tech team, you often get the first questions when we send over the initial offer that mentions options as part of the deal.
You mentioned that options can provide great value to employees. What did you think of your options as a means of compensation and motivation when you were first granted them, and has that changed since?
The deal me and my friend took when we started was to have a very low salary for our first year but with a really good option package, and then have our salary bumped up to normal levels after a year. So for me it was very important to get equity, because I’m the kind of person who works a lot and I wanted to have that kind of commitment to the company.
Today, 2 years later, I don’t think about the options that much, it’s more something that I might reflect on every quarter or so. But it’s definitely cool to see that your hard work pays off when the evaluation of the company rises. And let’s be honest, I do want an exit, so I’m very motivated to keep working hard to get that. And I think this is something that’s pretty powerful of stock options; 1) there’s a reason for people to work hard, besides the paycheck and 2) there’s reason for people to stay within the company to be a part of the success.
So when people do want to ask questions who’s responsible for answering them? And do they know more about equity?
The go-to person I think would be our Head of HR. I think he knows a fair bit of the options program, but I’m not sure how much. I think we could get better at educating our employees when they start about the options, but maybe also have a better forum if any questions would arise around this after you’ve joined.
In your opinion, what could employers do to solve this communication problem?
I think we could get better at educating our employees about the options when they join. Also have a better forum if any questions would arise around this after you’ve joined. Maybe have this information accessible at a central place, because it’s easy to forget – at least I do.So yeah, I think this communication is sort of the problem, and I think that’s what Capdesk is trying to solve as well.
But having said that, different people ask different questions. Sometimes people actually don’t show much interest and you sort of want to educate them so they understand that options provide amazing value, because you want them to feel this entrepreneurial spirit and work hard for these options. And sometimes you come across people who are a little bit of control freaks, like me, and from an HR standpoint ask maybe ‘too many questions’. But I don’t agree that there can ever be too many questions.
So from what you’re saying, it would be helpful if, for example, a company held company-wide workshops about the general terminology, changes, and so on, but then also accommodated one-on-ones for employees seeking more information?
Sure, that sounds like a pretty good plan.
Want to hear how Capdesk can help you make employee share plans better? Drop us an email at firstname.lastname@example.org