How to negotiate equity as part of your compensation

Employee shares and options are an underrated employee benefit. Having a slice of the pie can be financially advantageous for everybody. Think of it as a tasty side dish to complement your salary. 

How so? 

According to The Social Market Foundation, employees with a lower salary with access to share ownership schemes are a whopping £10k better off than those without.

If you are joining a business in its early stages, an employer can offset market salary with higher equity. Given the current climate, lots of companies are doing exactly that, while preserving cash flow at the same time.

Money aside, employees that are shareholders are more likely to contribute their very best. If the whole team are shareholders, just imagine what that does to team morale and their collaborative efforts.

When to ask

It's a good idea to bring up equity early on, perhaps at the interview stage. But nothing's stopping long-term employees from asking either. Better late than never, as they say. 

Salary-wise, if you're offered below the market rate, why not push for shares to make up the difference? 

We know full well that the word "negotiation" fills many people with a sense of dread. Think of a negotiation as just a conversation, not an Andrew Marr-style interrogation. Neither is it finite; it can be an ongoing discussion that's positive for both parties.

Here are our top tips for negotiating equity in a startup, private company or even as part of a job offer. And positive ways to broach the subject.

It starts by explaining why employee share schemes are so beneficial to both parties.

Get ready to educate

Share schemes come in different flavours, and a share scheme differs from a share option scheme. Read this to get up to speed. 

Eligibility for the various schemes depends on the industry, the size of the company and what stage it's at.

For instance, Enterprise Management Incentives (EMIs) are specifically for UK SMEs and startups with fewer than 250 full-time employees. It's the most tax-efficient scheme by far, and companies can entirely offset the costs of setting one up.

A lot of business owners aren't familiar with the schemes available to them, so you may have to be the one to teach them. And even if they are familiar, they may have had a bad experience in the past trying to set one up.

It can be a time-consuming and costly task and require an accountant's or lawyer's support. Unless you use Vestd of course! We’ve digitised the process to make sharing equity simpler and at a fraction of the cost that companies typically payout.

It's up to the employer to decide which scheme is best for their business, but nothing's stopping you from highlighting the benefits. Here's a business case that they can download for free to help them convince the board. 

What are those benefits?

We commissioned an independent study of 500 founders, owners, partners and executives to gauge how many share equity with their team.

Those that do share proceeded to tell us the benefits. Loyalty came top of the list, with most respondents seeing a significant improvement in their employee retention rate. 

Employees overall are also more productive and aligned as a team, thanks to the Ownership Effect.

Motivated by a common goal, employees are more likely to care about the company and support each other, contributing to that all-important positive company culture.

If that's not impressive enough, bring up the fact that a share scheme is a fantastic way to attract talent.

Celia V. Harquail PhD, author of Feminism: A Key Idea For Business & Society, recommends having multiple examples ready of peers in similar situations, the kind of equity they offered and how negotiations progressed.

You could always share Hannah's story with them:

Talk about the bigger picture

By talking about shares and options, you’re positioning yourself as someone invested in the future of the business, ready and willing to contribute to its success.

If you're applying for a role it will set you apart from the rest, and if you're an existing employee, it will highlight your commitment to the company. 

With most schemes, employers can define parameters that determine how and when equity is released.

Instead of giving shares right away, an employer can issue options that the employee can exercise at a later date, subject to the completion of specific conditions. (Exercise is just a fancy way of saying purchase).

In other words, you can agree on conditional milestones to meet relating to the role or areas of the business where there's room for improvement.

For example, someone applying for a Head Of Sales position could aim to deliver £2m of new revenue in order to release the full allocation of equity.

But don't worry if sales aren't your thing. The conditions don't have to be sales performance-driven. For instance, a web developer joining a tech startup may have a deadline to launch a new website. Every employee adds value in one way or another.

By agreeing on set milestones, you're demonstrating how you intend to contribute to the company. And the employer has the reassurance that conditions are in place to protect their equity and the promise of deliverables that will grow their business. 

You can even share our guide to conditional milestones with them. 

As Jana Rich the founder of the Rich Talent Group puts it: "The best negotiation is when both sides feel like they've won".

Conditional equity is the perfect way for everyone to win, based on your contribution to the business. These schemes are risk-free, from the perspective of the employer.

Understand the lingo

If your employer is willing to explore employee equity schemes like EMI or Growth Shares, then fantastic.

If you secure equity as part of your compensation, then be sure to meticulously read through all documents to understand how everything works, as well as any performance-based conditions that may apply. 

If offered an option scheme, then know the difference between exercisable options and exit-based options. Your employer will most likely outline a vesting schedule, which could impact your career plans.

For instance, it may be that you need to be with the company for a minimum of 12 months before any options are vested. You might see this expressed as a one-year "cliff". The idea behind it is to reward employees who plan to stick around.

Don’t be afraid to ask your employer or an independent advisor if you're unsure.

You're welcome to check out all of the resources available on our website. While primarily aimed at founders, reading through a few of our guides and jargon busters will help you become familiar with the lingo.

Be realistic

If the conversation doesn’t go your way the first time, don’t be disheartened.

There could be all kinds of reasons why equity isn’t on their mind, a priority or immediately possible. Decision-makers are usually swimming in a sea of admin. And don't forget, there may be other shareholders they need to persuade.

Treat a conversation about equity the same way you would a conversation about salary. Set a date to revisit the topic in the future. If at first, you don't succeed, take it on the chin and try again.

You can always make a counter-offer. Remember, compromise is key; find a way to mitigate any concerns they have about sharing ownership.

Remind them of the benefits of an employee share scheme, not just for the recipients but for the business as a whole.

Your five-point action plan

1. Go in with a positive mindset - it's a conversation, not an interrogation.
2. Know the lingo to sound knowledgeable.
3. Be realistic about what's possible and when.
4. Highlight all the reasons why sharing equity is worthwhile.
5. Talk about the bigger picture and how you want to contribute to the company's success in the long run. 

And, if it all goes well and you recieve a share agreement to sign, do your due diligence - if you're unsure about anything ask your employer or seek legal advice.

Why not point your boss in our direction? We'd be happy to answer any questions they might have.

All they have to do is speak with one of our equity specialists - initial consultations are free and there's no obligation to sign up after.

Best of luck!

Published 06/05/21. Updated 28/07/23.