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Equity Compensation for Startup Employees – Pros and Cons

One way startup companies encourage their employees to work with more dedication is to offer them an opportunity to build an equity position in the business. Indirectly, the employees become the co-owners of the company, and all of them work together to take the business to new heights of success. But in reality, granting a startup equity can be unsafe at times. Not all employees may deserve equal value of the equity, and what will happen if the business does not come out to be a success. So, here are a few key points for equity plans for the team members at a startup business.

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Equity compensation- a sign of good leadership

First of all, it is important to understand that every team member at a startup means a lot, and even a single decision and interaction can have a huge impact on the entire future and culture of the company. Granting equity can have an impact on the ownership of the investors and the founders as well, due to which most business owners feel skeptical about the option. But those who encourage employees to work harder and give their maximum performance by willingly sharing their equity have more chances of success in the industry.

Equity compensation and its impact on the employees

Offering equity compensation to the employees gives them a golden chance to grow within the company. Whether he is a business executive or just an intern for the company, it makes him feel that he has room for progress here. But one thing to keep in mind is that the compensation should not be available too easily to the employees. If they receive everything too quickly, they may not see any scope for growth in near future, thus stagnate. Therefore, providing equity compensation to the employees should be taken seriously by both the company owners and the team members. Forms of equity compensation like stock options work as a trustworthy relationship between the leaders and the employees, particularly if the company is in its initial stages of growth.

Part of a vintage railroad stock certificate

Keeping everything balanced is important in all aspects of life. As far as equity compensation is concerned, it is very important for the employers as well as for the employees to keep it balanced. If you are a business owner, you should be generous towards your employees without sounding stupid. You can offer them good equity compensation, but make sure that they do not receive it too easily and take it for granted. If you are an employee, you need to keep balance between immediately receiving the cash and see it as a potential long-term benefit.

To summarize, a thoughtfully planned equity compensation program will include all these things for the benefit of the employers as well as the employees. It is the employers’ responsibility to keep their employees happy and motivated, but make sure that they need to earn it and not take it for granted. With these points in mind, you as an employer will satisfy your employees and get things right from the very beginning.

I'm a self confessed foodie, king of the kitchen, wannabe anthropologist, technology evangelist , curious, inquisitive & experimental entrepreneur at @DigiLands and an adrenaline junkie. Love spending time with my wife & two young children and faulty KitKats that consist purely of solid chocolate.

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