Should You Give Employees Stock Options?

Stock Options

In the post-pandemic race for talent, companies are getting creative with their recruitment policies. On top of soaring salary offers, more companies than ever are offering stock options as an incentive for talented recruits.

While stock options give recruits a stake in the company’s success and provide a potentially lucrative incentive that goes beyond salary bumps, they are not always the best approach for all companies. If you’re wondering whether stock options would give your company a much-needed boost, read on to find out exactly when stock options are a worthwhile approach in your case. 

When you’re thinking long-term

First thing’s first, stock options are for companies and employees that are in it for the long haul. The whole point of a stock option scheme is to give your employees a reason to stick around, which is usually why such schemes require employees to hold onto the stocks for several years before selling. If you are planning on pursuing a sale or exit plan for your company, do not offer stock options to employees. This could create future issues later down the line as the value of the stock options could be prioritised over the long-term health of the company by the decision-makers.

When you recruit widely

If you are an international company or you are scaling quickly, you might rely on the services of overseas contractors or consultants. Since competition for talented contractors is fierce, you might need an extra incentive to get the best ones on board with your project. Due to tax and legal requirements, granting stock options is more complicated for outside contractors. That’s why we recommend using a dedicated share options scheme service that can grant equity to non-employees in a compliant manner. Such services can streamline the options process for everyone in your organisation, arranging the paperwork on your behalf so that you can focus on your business, and your contractors can focus on using their expertise to take your company to the next level.

When you have a large team

Share options are really only suited to organisations with a large number of employees. Remember, you should never give a single employee over 10% of voting rights in your company, so the portion of share options you can give away should always be small. In order to have a viable and sensible share options scheme, you should have enough people on your team to dilute the voting power that these options entail.

When you’re looking to reduce recruitment costs

We all know that the cost of recruiting talent has gone up a lot recently. In the era of the Great Resignation, starting salaries are soaring across a large swathe of industries, with the wealthiest companies often able to attract star talent. If you want to recruit the best but can’t afford to dispense six-figure salaries, stock options are a low-cost way to boost your value proposition for the workers that you want. 

When you trust your executives 

This might sound obvious, but it warrants repeating. Only issue share options when you have complete and full faith in your C-suite. It is not unheard of for executives to take unnecessarily risky business decisions to boost the value of their stock options, especially if they are planning on jumping ship sometime soon. That’s why you should only offer stock options if you have full confidence in your executives to put the company first. 

Share options are a great way to boost morale, retention, and engagement. When your employees have a tangible stake in the company, they can be just as invested in its future as you are.