Growing companies know that equity matters.
Rewarding talent by giving them stock options is table stakes for tech startups.
With the rising number of high profile exits of venture backed companies, along with an employee led market, there is now a growing expectation around ownership.
Cash is merely a commodity. To compete for top talent, companies have to let team members in on the action.
But what happens when there’s an employee education gap? What if your team members are inexperienced when it comes to equity?
Or if employees belong to underrepresented communities that didn’t afford them a strong financial background?
When we first published our post, The Startup Equity Glossary: Helping Your New Hires Demystify A Complex Currency, apparently we struck a nerve. Many people shared they were not alone in their lack of education about what equity means. Turns out, the nuanced details of stock options can be complicated and overwhelming.
Especially if someone comes from a background that didn’t include a baseline education on financial matters.
I have a friend who worked for three years at a high growth startup. He was given a healthy package of stock options along with his salary. But he ended up leaving after only three years, several months before his vesting date. In short, he didn’t stay around at the startup long enough to exercise his shares.
Here’s what he told me:
“Nobody educated me about terminology like strike prices, vesting cliffs and expiration dates. When I left, I got the email too late. Even after I googled all these financial terms, I still didn’t have the cash on hand to exercise my shares.”
His company could have helped him. They could have leveled the playing field around compensation by educating all employees on equity equally.
If you’re a people leader and want to make sure this missed opportunity doesn’t happen at your company, here are several recommendations to consider.
Compensation is an inherently technical, often ambiguous subject. Especially when it comes to stock options. But it’s a serious issue that involves your team’s livelihoods. And many people at your company might hesitate to raise their hands to ask about this process.
Maybe it's because they’re new to the workforce. Maybe because it’s their first startup job. Maybe because they are ashamed of their lack of knowledge and don’t want to risk losing social capital among the team.
Maybe because they’ve never been exposed to proper education about equity. Or maybe their disadvantaged upbringing put false narratives in their heads that stood in their way of achieving financial freedom.
Under these normal circumstances, it makes perfect sense that these people would fear speaking up about their limited or lack of knowledge about equity. Of course they are scared to ask questions about exercising options.
Deploy compassion first and foremost, accepting that many of your team might not have been taught about financial literacy. If employees are only now (much later in life when compared to their colleagues) learning about the many nuances of total compensation, let them know that’s not a weakness.
There may be a vesting cliff on earning, but not on learning. It’s never too late for anyone.
And the more of your employees who know that, the better they will feel about working there.
For employees who don’t understand how equity works (and even the ones who do), the big picture of compensation education is showing them how impactful it can be from an investing standpoint.
In our previous post, How to Sell a Candidate Your Offer, our recruiting team chimed in with strategies creating inspirational ways to engage with compensation, specifically equity. Pave uses Visual Offer Letters (both with our employees and our customers) and this tool goes a long way from an educational perspective.
First, it eliminates confusion around equity by visually communicating total rewards to employees. Employees can see in real time how their stock options grow in value commensurate with company growth.
Secondly, the Visual Offer letter elevates a candidate’s understanding of equity, a topic they might otherwise shy away from in an interview or onboarding situation.
Personally, I didn’t understand a darn thing about equity when I first started working at Pave. My Visual Offer letter was the first time a potential employer ever helped me visualize the upside of working for them. I felt appreciated, empowered, and most of all, educated. That was the day my compensation education began, and I was 41 years old.
If your company is looking to create more compensation fairness, start from day one. Even before day one. Level the compensation playing field by beginning the equity education in the candidate experience, and continuing in perpetuity.
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Ultimately, communicating about compensation is very much a diversity, equity and inclusion issue. Consider groups of underrepresented employees who may already feel different from their peers either because of race, creed, color, national origin, socioeconomic upbringing or education history.
The last thing they want is another reason to feel marginalized at work. Companies that fail to educate their employees equally on equity are only highlighting an already sensitive issue.
On the other hand, when people leaders are incredibly transparent about educating everyone in the organization on understanding their upside, the changes are transformative.
Human resources are negating the possibility that someone's background is preventing them from taking advantage of their compensation opportunities.
And that’s a powerful experience from a diversity, equity and inclusion standpoint.
Companies prove to people that their background has nothing to do with their ability to make money and take advantage of future earnings.
There may be a vesting cliff on earning, but not on learning. It’s never too late.