The Four Equity Conversations You Should Be Having
Empowering you to have equity focused discussions with team members
Equity can seem like an overwhelming topic. But it doesn’t have to be.
Particularly inside the walls of startups. Too many employees are bewildered about their stock options. And in companies that are growing quickly the pain is particularly acute, given the equity conversation has to evolve every time there is a new fundraising milestone.
But if your company wants to drive ownership by focusing on equity compensation, then you have to own this internal conversation. The whole team needs to feel empowered to discuss complex topics like equity – what it is, and how it fits into compensation conversations – to reduce employee confusion and align everyone around your mission.
Pave recently announced that we’ll be expanding our operations in Europe. To support our growing international customer base to achieve our mission to make compensation transparent, accurate and fair, we’re teaming up with a new cohort of global partners.
Meet Ledgy, a platform that helps international teams manage equity and share ownership. Their software helps senior leaders, finance and people functions engage employees and investors as they scale.
In their annual publication, The State of Equity & Ownership Report, they identified that function heads should be empowered to have equity focused discussions with team members, rather than annual awards being decided privately and unilaterally by the founders or C-suite.
Conversation #1: Market Comparison
Companies need to ensure managers can understand and effectively communicate the logic behind how equity is allocated to different team members. If your company uses benchmarks from comparable companies and adjacent sectors, for example, explain this to your team. Taking the time to walk through the company’s approach communicates trust and reassures team members that there is logic and data behind their equity packages.
When many European companies still don’t offer equity as a form of compensation, simply sharing your company’s philosophy on shared ownership is a great starting place. And when you think about comparisons, note that most compensation surveys sponsored by slow moving incumbents have leveraged the same spreadsheet driven, offline processes since the nineties.
When looking at market comparisons, offering real time equity benchmarking data that isn’t outdated becomes a competitive differentiator. Now your equity decision-making is validated through accurate, triangulated data. You can achieve your goal of being ahead of the equity curve. Our core belief is that every company has a duty to use real-time equity (and salary) benchmarks to price all compensation packages and offer letters.
Conversation #2: Growth Scenarios
Now that benchmarking has given you a baseline against which to compare equity, the next step is thinking about how that equity package will grow.
Is your company discussing the optimistic, base case and pessimistic scenarios for how equity packages could grow over time?
If so, can leaders help employees understand the potential personal outcome for each employee who has equity? If not, you’re missing out on a powerful educational opportunity. Arm your leaders with information on how different valuation outcomes could impact employee equity, ideally with examples.
Conversation #3: Risk Reward
Are you asking whether employees would be in favor of trading in some salary for more equity? This is an initiative more companies, including Ledgy, are offering to team members. All scaling companies have to think creatively and ambitiously when it comes to compensation. If they can’t offer the same salary as their enterprise company, that gap can be bridged with the upside potential of stock options.
In their illuminating book, Rewarding Talent, Index Ventures summaries this strategy as follows:
“Salary differences between startups and established companies are narrowing. Startups still pay lower cash salaries, but competition for talent is forcing them to narrow the gap. Stock options are ever more important to hire and retain top talent. The next generation of successful European startups will not achieve greatness if they do not effectively reward talent through the use of stock options.”
If your company wants to go the extra mile to offer employees attractive benefits and packages, it starts with creating an environment where compensation is a two way conversation. To turn compensation into a competitive advantage, here are some key elements to incorporate into those manager discussions:
- Are team members satisfied with the frequency of pay reviews?
- Does compensation stop at salary and equity, or can you bring pensions, insurance and other benefits into the conversation as components that can be tailored or adjusted?
- How much transparency can you offer on how salary and equity will increase over time?
- Is it set out in progression frameworks, or is it highly variable and dependent on results?
Conversation #4: Knowledge Gaps
Is your company asking whether there is anything employees don’t understand about their equity packages? In our recent post, The Ultimate Guide to Choosing the Right Comptech, we took you through a systematic process for determining the gaps between your current comp system and your desired one.
The finicky thing about compensation ignorance and equity confusion is that it’s difficult to measure. But helping your employees understand how equity contributes to their total comp, both now and as it matures, is a worthwhile internal effort. Human resources teams need a finger on the pulse of their team’s expertise, particularly when it comes to opportunities for education.
One of Pave’s clients, the head of people at a financial services company, was growing their headcount substantially in the past year. They came to us seeking systems to help managers create regularity in their communication practices. As they joked to us, compensation planning isn’t something you can just bring to human resources and get something done in five seconds, it’s not a car wash. If only comp was that easy!
Thankfully, once we implemented their program and launched their communication technology, our client reported that the first time walking a candidate through Pave, both the executive leaders and line managers loved the program. They reported that it was so much easier to explain their full offer package with stock options, now that equity could be simplified, visualized and celebrated.
If you want to kickstart internal initiatives to make equity easier for the whole business to understand, be sure to answer these question in your conversations:
- What happens to an employee’s share options when they get promoted or receive outstanding performance reviews?
- What potentially taboo issues are newly hired employees hesitant to raise their hands to ask about?
- What kind of messaging cadence would keep employees engaged with share options?
- How are you producing customer scenario models that take account of variables like dilution, employee leaving and different vesting schedules?
To understand more about how Ledgy handles equity for employees and helps finance and people teams scale equity operations, visit ledgy.com!