Should Your Startup Share Equity with Employees?


by SurePayroll |

As the owner of a startup, you will have a lot on your plate. While every detail is as important as the next, a focus on hiring the right talent is crucial.

At some point, you may be faced with a big question: should your company award equity to workers? In the startup world this is becoming more and more common, however, it is not something you should throw around loosely.

When it comes to equity sharing, there are a variety of options to consider. But before you do anything, answer these questions:

  • Is awarding equity commonplace throughout your industry?
  • If this is not something others are doing, why not?
  • Do you have investors in your business?

After answering these questions, among others, you are in a better position to decide if equity sharing would be in your best interest.

In a recent Businessweek article, Mike Moyer, author of Slicing Pie, discussed this topic:

In a startup, the risk is very specific. It’s the risk that you will not get paid for your contribution. The amount that you might not get paid is equal to how much you would have otherwise been paid by someone else for the same work.

By measuring each worker’s risk, you can determine how to award equity as fairly as possible.

Still the Wrong Choice?

In the event that you decide against equity sharing, you can still provide workers with incentives. For example, cash always has been and always will be king. Why not setup a profit sharing plan? With quarterly payments, for example, workers will have all the incentive they need to push their performance to new heights.

Starting a company can be both exciting and challenging at the same time. When questions regarding equity sharing come to the forefront, be sure to make the decision that is best for you, the company, and of course, your workers.