Timestamps:
2:19 - Why doesn't Europe get employee participation plans right?
7:04 - How much equity should you give your employees?
16:26 - How to communicate stock option plans to your team
23:35 - The politics of stock option plans
27:53 - Rapid fire questions
Episode in 60 seconds
Getting employee participation plans right.
Why participation plans are important
- As a startup, you’ll often struggle to compete with established companies on the salary front. Stocks are your secret weapon to attract top talent in spite of limited cash.
- Holding stocks factually makes the employees co-owners of the company. It’s easy to see the positive influence on mindset and attitude that co-ownership can bring.
Participation plans in Europe vs the US
- Employees in Europe hold less than half of the company stock than their US counterparts. This is among other things due to lower awareness of the value of participation plans amongst the European workforce.
The mechanics of participation plans
- How much stock should you reserve for employees? Generally good bench marks are 5-10% in the early stages of your company and up to 20-30% in later stages
- Who should receive stocks? Ideally, everyone. Large companies like Google still offer stocks to every new employee which joins the company. Long term employees should get regular “refreshers” i.e. more stock added to their portfolio
- How do you decide who gets what? There are 3 dimensions to get you started. Depending on your priorities and culture, you might to weigh them differently
- Seniority level: more responsibility means more stock
- Employee number: early joiners took a higher risk when betting on your company and should be rewarded accordingly
- Tech vs non tech talent: the truth is, tech talent is much harder to compete for in today’s labor market, so it’s common to offer them larger participation options
Pitfalls of participation plans
- When you are short on cash, it’s tempting to think you can make up for a low salary with stocks. This is not a fair way to treat your employees as you are forcing them to bet their financial security almost entirely on the success of your company.
- It may also be tempting to oversell the value of participation plans to your employees. Wile it’s certainly not wrong to strive for a unicorn valuation, the truth is most companies will never get there and you should be honest with your employees about this.
- Be aware that in Europe, every country has their own rules for how employees participation plans work and how they are taxed. Consider getting some legal help when you want to internationalize.
If you want to listen to more conversations with Yoko, check out our story episode with her.
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