Unlock the power of equity to attract and retain talent

Last updated: 7 June 2024.

Attracting and retaining talent remains a top priority for startups, but it’s no easy feat in the current economic climate and business environment. 

The Federation of Small Businesses found that some 45% of businesses are struggling to find and retain talent, an increase from the previous year.

It’s a perfect storm of challenges, with post-Brexit immigration laws diminishing the talent pool, the cost of living crisis keeping costs high and wages stagnant, and inflation driving higher salary expectations. 

However, startups know they simply must find a way to secure talent to grow. Tech companies, in particular, plan to increase their headcount for permanent roles in 2024.

This only drives up competition. Startups have a fight on their hands. Now is the time to optimise talent acquisition tactics and consider what might be missing from your recruitment strategy. 

And that includes equity, an untapped resource that might prove your secret weapon in winning and retaining the talent your business needs to thrive. 

The full package

It’s no secret that UK salaries don’t increase as often as they should in both the private and public sectors. This creates tension, as businesses know they need to increase pay to attract and retain employees, but they just can’t afford it.

One study found that 52.8% of businesses are actively increasing salaries to retain employees, yet 25% are struggling to manage pay increase requests.

That seems paradoxical. Sometimes, the intent is there, but the cash just isn’t - particularly for early-stage startups creating value without the liquidity to splash out on bigger salaries.

Beyond salaries alone, applicants also want an impressive employee benefits package. In fact, 45% of British employees expect one. But for your company to truly compete, you may want to consider offering more than just quirky office perks or discount codes.

There is at least one employee benefit that’s sure to make your startup stand out: equity.

Sharing equity is a superb way to attract talent, incentivise teams and improve retention.

It’s the perfect strategy for growing startups that want to reward their employees handsomely but don’t necessarily have the liquid cash to ramp up salaries by the minute. 

The power of equity

Let’s explore the role of equity in attracting and retaining talent.

Attract talent

Early-stage startups typically don’t have a lot of money to play with, so it’s not always possible to offer highly competitive salaries. One solution is to leverage company equity instead. 

Not only will this help to preserve cash flow but also attract applicants with the possibility of a lucrative reward for their loyalty. 

Using equity as an incentive to attract talent is commonplace in sunny Silicon Valley, but less so in the UK. So adopting a share or option scheme at your startup is one surefire way to make your benefits package stand out. 

Especially as applicants in the UK are genuinely interested in getting a slice of the action. In a survey we conducted with YouGov, when choosing one identical job over another, one-third of respondents told us that a company share scheme would tip the balance for them. 

There are various ways to share equity with employees, which we’ll explore in more detail later.

One way is with an Enterprise Management Incentive scheme (EMI), something Simon Adcock CEO of ATEC-Security believes attracted two talented team members:

Our commitment to an EMI scheme was instrumental in securing the services of two new leadership team members who have since made a critical difference to our business performance.

Clearly, equity has a leading role to play in talent acquisition. But aside from that, you might be wondering what’s in it for me and my shareholders? Why should I share equity with my team? 

There’s a strong business case for setting up an employee share or option scheme. We’ve put one together that you can download for free, take a look through and share it with stakeholders.

Retain talent

Let’s say you’ve secured a fantastic addition to the team. What then? What role does equity play in helping to retain talent? Firstly, philosophy. 

The idea behind sharing equity is linked to the Ownership Effect. When an employee has a vested interest in a company (literally), they're more inclined to contribute their very best and also encourage (and support) their colleagues to do the same. 

Essentially, equity aligns and unites teams behind a common goal. That creates a strong team, a happy team of effective communicators and collaborators more likely to stick around.

In a 3Gem survey, nearly half of the founders, owners and senior managers surveyed agreed that their share scheme had strengthened their company culture. 

Secondly, equity is typically used as a long-term incentive.

Employee share option schemes like EMI can be conditional, which means that equity is not released immediately (in most cases). For a recipient’s options to vest (that is grow in value), conditions must first be met. 

Conditions can be time-based, performance-based or a combination of the two, which cultivates long-term thinking. Employees work towards long-term goals with the promise of equity as an incentive. Naturally, this helps to improve a company’s overall retention rate.

Talking of EMI, Antonius Wubben director of Kaizen Furniture, believes that it’s a brilliant tool for retention:

There is nothing better to retain your staff than to recognise their talents and by providing them with EMIs that will make them feel proud and more part of the business.

Furthermore, a whopping 95.2% of existing Vestd customers operating an EMI scheme say it has helped with retention.

How to share equity with your team

So, equity has the power and potential to attract and retain talent. But what’s the best way to go about sharing equity with the team?

There are plenty of options available to UK SMEs, startups and scaleups. Eligibility for the various schemes depends largely on the size of the business and the industry. 

Some schemes are HMRC-approved with attractive tax advantages, whereas others offer greater flexibility. Take a closer look at the different schemes to decide which one is best for your business.

You should first consider whom you want to give shares or options to, how much equity to allocate and when. Our 10-point checklist will help.

Traditionally, setting up an employee share scheme is a painstaking task typically involving tons of paperwork, lawyers and accountants. But there’s a better way; digitally. 

Vestd is the UK’s first and only FCA-regulated equity management platform designed to make setting up a share scheme much simpler. 

So, if you’re thinking of levelling up your recruitment strategy by sharing equity, book a free consultation with a member of the team and make it happen.

Talk to an expert