The idea of sharing equity is a no-brainer. Share schemes are proven to increase productivity and improve retention rates. We've helped hundreds of like-minded founders with the same philosophy share a piece of the pie. But how often does the thought of equity cross the mind of an employee or job hunter?
Think back. How many of your colleagues or friends broached the subject with an employer early days or after? Probably not that many. There are countless lists online of questions to ask interviewers, but all too often, there’s little advice on how to enquire about equity.
So, why aren’t prospective employees aren't always asking prospective employers whether they offer an employee share scheme? In a way, it's surprising because, in the wake of the Coronavirus pandemic, our financial habits are evolving.
Interest among housebound Brits to invest in the public stock market has increased. So, if Brits are becoming financially savvy with public stocks and shares, why aren't they asking their employer about private company shares? What’s the blocker?
In this article, we've explored possible reasons why employees don't always ask that all-important question. There are several factors, from a lack of awareness and understanding to being sold on salary alone, which isn’t always the way to go.
Lack of awareness
Arguably, the crux of it all. There’s often a lack of awareness among employees about what an employee share scheme actually is. So, let’s start by breaking down this barrier.
In its simplest terms, an employee share scheme is a way of sharing company ownership with a team, whether that’s the whole team or select key players. There are two distinct ways of doing this: recipients are either given shares right away or issued options to exercise later.
Many types of employee share schemes (and option schemes) exist in the UK, and eligibility largely depends on the size of the business and the industry. Some are more popular than others and offer additional perks like tax advantages. A prime example would be Enterprise Management Incentives (EMIs) approved by HMRC.
Ultimately, it’s up to the employer to decide which one is best. And in most cases, the employer can set conditions and milestones to be met before equity is released. But armed with a basic understanding of employee share schemes, employees and interviewees can, at least, start a conversation.
Sold on salary
Another reason why equity may not be at the forefront of a person’s mind is that at the application stage and during the interview process, salary is often the selling point. Employers want to appear competitive in the job market. And it’s ingrained in our capitalist culture to place a numerical value on almost anything, so often, the first thing someone looks for in a job listing is the salary.
Salary is important, but it isn’t everything. We’re starting to see a shift in the expectations of employees and job seekers. In a survey conducted with YouGov, we asked 2,000 workers what motivates them. Surprisingly, being appreciated and thanked by managers was the top answer, not salary. And one in three stated that a company share scheme would tip the balance for them if they were in a scenario where they had to choose between two identical jobs.
In this current climate, not every employer can offer a generous salary, pay rise or bonus. Lots of companies are recovering from COVID-19 losses. So many are actively looking for alternative ways to reward existing teams and attract new talent.
One solution is to offer employees shares instead of a pay rise or a bonus. In some cases, shares can be financially more rewarding than just a higher salary. Plus, some schemes, like EMI, are more tax-efficient than giving a bonus too. Both employees and employers then should consider alternative forms of compensation, such as a share scheme.
Employers aren’t always forthcoming
Employee share schemes can be complex. The traditional method of hiring accountants and lawyers to take care of everything can be costly and time-consuming. So, we understand why employers may not be forthcoming in talking to employees about equity. If it's not brought up in conversation by the employer, then the employee may not feel comfortable bringing it up at all.
Not everyone is on the same wavelength either when it comes to equity, so sometimes, there is reluctance. We often hear concerns about dilution and the impact it has on existing shareholders’ shares. But share dilution isn't always something to avoid.
The Vestd platform has digitised equity management to make life simpler. And part of our job is to dispel myths and misconceptions surrounding equity. We've put together informative guides and other free resources to help decision-makers. Employers, if you're reading this, you can book a free consultation here.
On the flip side, if an employer is forthcoming about equity, have they got the material ready to educate their team? We think that sharing ownership should be celebrated, shouted from the rooftops or proudly announced at the office Christmas party. Nothing aligns a team quite like shared ownership.
Employees need to understand what the share scheme entails, the conditions and how shares or options could benefit them in the long run. Maybe something along the lines of this slide template that we specially designed for EMIs. If an employee has access to educational materials, they may not even need to ask about equity. The answer might be in front of them. Or it might inspire them to dive deeper.
We’re constantly updating the Vestd platform to be as intuitive and easy to navigate as possible for this very reason. By improving overall awareness and understanding, employees will gain the confidence they need to ask their employer (or future employer) about equity.
These are the four reasons why employees and interviewees aren’t always asking about share schemes and options. If awareness among employees and job seekers increases, then hopefully, more will talk about equity openly. And think about an employee share scheme as a selling point for a company, something to explore.
It's also up to the employer to start a conversation and provide educational materials. If you think an employee share scheme is something that your employer would be interested in, point them in our direction.