Why Companies Should Share More, Not Less About Employee Stock Options
Why greater transparency offers a disproportionate upside to organizations and candidates
Apart from base salary, many startups offer equity as part of their compensation package.
Equity offers employees a stake in the business they’re a part of, and the price of equity changes as the company’s trajectory does.
And at minimum, most companies share information about base salary and high level benefits like free meals and wellness stipends when they extend an offer to a candidate.
But it still might not be enough.
In our experience working with thousands of organizations across industries, we believe that companies and their employees greatly benefit from sharing more, not less, about stock options. Remaining siloed is not the answer to the modern talent economy.
Below, we will explain why greater transparency around equity offers a disproportionate upside to organizations as well as candidates.
Building a Culture of Transparency
Equity is merely one spoke on a larger wheel of communication. There’s a bigger picture here of creating a transparent environment where talking about compensation is encouraged, not taboo. And since technology is making it increasingly difficult to hide things from employees, it’s smart to get ahead of it.
As we love to say around Pave, “Transparency is the ultimate retention strategy.” It’s a competitive market, and you need to understand how your levels of transparency stack up against your peers.
The unfortunate reality is, managing the stock options narrative for any company is complicated and difficult. The vast majority of employees are bewildered about their stock options, and it changes every time the company raises another round of money.
This is a huge disservice to a team. Not knowing how total rewards program elements will behave at different points in the company's lifecycle is a significant financial uncertainty.
Understandably, companies will have varying levels of transparency depending on how strong their foundations are, how confident the company is, and how prepared and empowered are their managers to have these conversions.
Your challenge is figuring out how to create new knowledge about what's going on within your organizational walls, as it pertains to total rewards.
Our recommendation is, design your compensation philosophy to fit your organization’s needs, allowing it to best reflect your unique values and operating style around equity transparency.
Sharing More As Your Company Evolves
If you’re a fast growing startup, there are many ways to paint a complete picture of your overall compensation. Letting employees know how many shares they have, the exercise price for shares, and vesting schedule, that’s a good start.
But there’s more you can share as your company evolves, including the latest preferred price, preferred price for every round, and current post money valuation.
Not only do these additional details help employees understand how the company is evolving over time, but also how much they stand to make by investing their time in your company. When employees better understand the potential growth of the company, they’re more likely to stay on, and stay engaged.
If your company commits to doubling down on equity transparency, there are many ways you can go the extra mile. While it doesn’t make sense for every organization, we’ve observed some companies that are willing to be radically transparent with certain details like:
- Fully diluted shares outstanding
- Historical bonus/variable attainment
- Capitalization details
- % ownership of the fully diluted cap table
- Average compa ratio for role
- Full compensation framework, including levels and tracks
- Position in salary band
You can read about these data points in further detail in our other popular post, How transparent are most companies with compensation?
Communicating Equity Interactively & Beautifully
When your candidates and employees have a total reward portal that’s dynamic and they can play with and model out, the conversation around compensation shifts.
Particularly as our world moves closer to a virtual first labor economy, companies need creative and asynchronous ways to present the value of their total rewards to their people.
Here’s a snapshot of Pave's visual offer letter:
The impact of sharing your benefits in a unique, visually stunning format cannot be understated. When your human resources teams help employees see how equity shifts over time, you:
- Translate an otherwise abstract concept like total rewards
- Enable candidates to see the holistic value of being employed by a company
- Inspire candidates to dream big about their equity and total compensation
- Transparency becomes a behavior you actually practice, rather than simply talk about.
- Reduce the recruiting teams’ chances of losing out on talent to the competition
We understand it takes time to work your way towards a more formalized plan, but bringing greater intentionality into how you’re thinking about equity communication when it comes to hiring and retaining employees will help you build a culture of trust and transparency from the start.