Equity compensation is a significant motivator for startup employees to join and stay engaged with their company.
As equity can be a crucial motivator for startup employees, it is often included in startup remuneration. Yet many companies aren’t going above and beyond to help their employees understand and maximize their stock options. Which detracts from the value on both sides. When joining, engaging, and remaining with their organization, startup employees can benefit from more education on this topic.
Employees will never be able to fully comprehend the effects and value of equity if it is never given to them. Offering equity, options and educating startup employees about it is the proper thing to do for those who work every day to help founders and investors develop a profitable company. Mainly, it’s also vital to foster an environment that retains its finest and most experienced staff, and rewards them well.
This article will help you understand how to educate startup employees about equity. Providing an understanding of the importance of equity education, how you can create an effective equity education program, and the sound approaches you can use to communicate your equity plan to startup employees.
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. Why is Equity Education Important?
- 2. How to Include Equity Education Teachings in Your Company?
- 3. In the Offer Letter
- 4. During Onboarding
- 5. Through Company’s Blog
- 6. Through the Product
- 7. How to Design a Program for Equity Education
- 8. Commit to Transparency
- 9. Craft Training & Resource Guides for Equity Education
- 10. Communicate the Important Milestones with Employees
- 11. Keep Staff Informed About Company Changes & Expansion
- 12. Sound Approaches to Effectively Communicate Equity Plans
- 13. Consider Who the Equity Based Compensation Plan Is For
- 14. Keep It Simple
- 15. Consider Multi Channel Communication
- 16. Make Learning about Equity Ownership More Engaging
- 17. Prepare Participants for Success
- 18. Follow ups
- 19. Continue the Talk about Equity Ownership
- 20. Conclusion
Why is Equity Education Important?
Employees must grasp the meaning of having equity in the firm when organizations remain private for extended periods. As well as how going public impacts them. Job satisfaction, company growth, and workplace culture benefit from equity education.
On the other hand, not providing enough equity education might contribute to workplace failures. Employees who don’t know their stock options may make rash judgments, accept unfair offers, or fail to benefit from opportunities to grow their stock options. Employees may feel undervalued or unhappy over time and decide to leave the organization.
Proper equity education is a straightforward strategy to boost retention and make your company more inclusive. Employees who feel knowledgeable and empowered are more likely to exercise their stock options, take a personal stake in the company’s success, and stay on to reap the advantages of their investment. It, in turn, benefits the company and generates financial benefits.
How to Include Equity Education Teachings in Your Company?
Considering the importance of equity education, especially for startup employees, firms should commit to offering adequate and ongoing equity education to all of their employees. You can integrate equity education lessons into your company in the following ways.
See How I Can Help You With Your Fundraising Efforts
- Fundraising Process : get guidance from A to Z.
- Materials : our team creates epic pitch decks and financial models
- Investor Access : connect with the right investors for your business and close them
In the Offer Letter
Your equity education ought to begin by the time you issue your letter. All of your startup employees must know how to 1) assess their job offer and 2) compare it to other employment offers, particularly those from public companies, where equity is typically more liquid and easier to grasp.
So, your offer letters should include the following:
- A detailed breakdown of employee benefits
- A description of what vesting is and how equity options at your company vest
- A compensation summary includes the number of options granted, the strike price, the predicted preferred price, etc.
After the offer letter comes the employees’ onboarding sessions. During onboarding sessions, dedicate a session to equity education. Avoid being overly technical or boring. Make it enjoyable, relevant, and valuable.
It will help startup employees comprehend their equity and provide them with the information that they need to perform better in their employment, especially if they work in customer service, product development, or marketing.
Additionally, during orientation sessions, you can provide new employees with a document that includes equity jargon, FAQs, and questions they can ask financial advisors, accountants, or lawyers.
Through Company’s Blog
Use the company’s blog to publish articles, tools, and tips that explain complex equity subjects, such as how employees can sell their shares and what happens to their stocks when they leave a company. You can distribute new equity articles on social media for your present and potential employees to access equity knowledge and share resources with people from other industries who want to learn more about equity.
Through the Product
Try to build employees’ equity education into your business model. One way to do it is to include equity related educational material links in your transactional emails. Provide your staff links to learn more about new grants or vesting choices so they can make educated decisions. Also, emphasize content on your company’s website or intranet so that your employees can understand what they’re getting into when they choose to exercise their options.
How to Design a Program for Equity Education
Teaching your staff about equity is an investment in the future prosperity of your firm. Here are four things to remember while creating an equity education program:
Commit to Transparency
Transparency is the key to effective equity education. Commit to transparency in your offer letter as it is among the best ways to build employee trust and develop better transparency about equity. Dissect your complete remuneration package, including salary, stock options, perks, and the system or formula you used to arrive at those figures. Explaining why you provide the equity you do can assist in clearing up any misunderstandings, set you apart from the competitors, and build employee trust.
Become a company that uses multimedia engagement tools to offer transparent equity policies. Share the company’s equity formula and the number of shares you grant each employee. Your purpose should demystify equity for employees who are unsure of it or how it works. Also, go over the advantages and disadvantages of the equity alternatives you provide employees.
This is all critical especially when you are raising or when you have already raised capital from investors. Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Craft Training & Resource Guides for Equity Education
Educate startup employees about equity fundamentals through hosting equity education sessions. Budget enough time to address more sophisticated topics, such as how equity is taxed, besides answering new staff inquiries and reviewing equity basics. You could also compile a list of resources for your staff that includes how to talk to an accountant or financial advisor.
Communicate the Important Milestones with Employees
Equity training should be a continuous practice rather than a one time event. You can assist employees by reminding them of important dates, like the notification about the vesting of their first stock or the time they have to work out their stock options after departing.
Consider delivering extra information via email, inviting staff to one on one meetings to address questions, or perhaps celebrating to commemorate the occasion. Employees will be more motivated by the company’s success and will feel more powerful if they get guidance and support at each stage of the equity journey.
Keep Staff Informed About Company Changes & Expansion
A company should inform the employees about company choices that influence their equity as part of ongoing equity education.
When a significant event occurs, such as a new funding round or an IPO, the first step in reflecting equity changes is to update the cap table. Conducting regular meetings to discuss company data and allowing employees to raise questions regarding their equity rights and options are also beneficial.
Employees can make better judgments about their equity if they are informed about new investments, significant hires, and company KPIs.
Sound Approaches to Effectively Communicate Equity Plans
Use sound and solid approaches to effectively communicate the equity plan with the startup employees. It will help promote equity plan participation and, thus, a better understanding of the stocks for your new hires. A few sound tactics are required when conveying equity plans and participation agreements.
Consider Who the Equity Based Compensation Plan Is For
Although many startup employees may not be familiar with equity compensation, others may fully get it, so offering varying degrees of education makes it logical. Consider implementing a two tiered communication strategy, with novices receiving the most in depth training and additional support and seasoned equity plan participants receiving only the highlights. It’s critical to ensure that each employee knows their equity participation agreement, including vesting timelines, cliff periods, etc.
Keep It Simple
No one likes to sift through dense education filled with technical words, no matter how well your startup employees understand equity based pay. Utilize easy to understand language in your communications to increase plan participation. Employees’ equity compensation should be more understandable by employing principles that your employees are familiar with.
Consider Multi Channel Communication
As learning styles differ, communicating across several channels increases the chances of reaching the most significant number of people, and in a meaningful way. While some of your startup employees will read the entire booklet of an equity plan, others may instead read shorter sections on your company’s intranet. Some people learn best by reading, while others prefer face to face contact, listening, or perhaps watching video. Consider employing emails, text messages, videos, events, and other mediums to reach them all. Also, use interactive online learning modules to make the education more participatory.
Make Learning about Equity Ownership More Engaging
Startup employees may find onboarding difficult because they are often bombarded with varied information that they cannot quickly process. That’s why a centralized site with easy to navigate educational materials is critical. It can be made feasible with solid equity plan management software that offers content and other educational tools right on the platform. Participants can also be allowed to use the system to check award agreements and receive automated alerts about impending award related events.
Prepare Participants for Success
Startup employees who are unsure of their equity pay may be hesitant to participate in the plan because they are afraid of making a mistake. Therefore, you should have a straightforward design that would allow your staff to get help in executing trades.
You can also develop a mobile app that would allow employees to make portfolio projections, track vesting events, exercise options, check balances, and sell or transfer shares from anywhere.
Furthermore, suppose your participants have any issues regarding account activation or system navigation or require assistance with trading or tax forms. In that case, your company’s support system should be accessible 24 hours a day, seven days a week to help.
Only encouraging employees’ involvement in equity plans during orientation sessions and expecting the best isn’t enough. You should follow up regularly to ensure that your employees get the required information and know their next steps.
Continue the Talk about Equity Ownership
Once the employee signs an offer letter, you need to continue discussing equity compensation. It’s critical to provide continuing education to your employees to develop a culture of ownership. You can use a range of formats, including fireside chats, regular blog articles, entertaining video series, posters, alerts, and events.
Equity education is a significant inducement for startup employees to join and stay with their company. But often, companies don’t go out of their way to help their employees understand and utilize their stock options effectively. Offering equity options to startup employees and informing them about it is the right thing to do if you want to keep your best and most experienced personnel. Educating your employees (especially startup employees) about equity requires in-depth, ongoing efforts. You should include equity education teachings in the offer letter, during orientation, through their life with you.
Design a transparent equity program, provide extensive training and resource guidance on equity education, communicate the critical milestones regarding equity with employees, and keep your employees informed about the company’s changes and growth.
While creating such an effective equity education program, you should also use sound approaches to effectively communicate the equity plan to the employees. Hence, educating startup employees about equity is not a one time thing; it needs to be extensively included in the company’s business model from the start and throughout the continuous journey.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.