Employee share schemes bring serious benefits including increased productivity, team alignment and a greater ability to retain and attract staff. But knowing where to begin can be confusing to say the least.
However, getting started is simply a case of working through five common-sense steps.
Vestd, the UK’s number one share scheme platform, has put together this easy guide to help you work through those stages.
Step 1) Decide why you want to share your equity.
Equity is an incredibly powerful tool for growth and there are many reasons for sharing yours.
The most common reasons are:
- To attract talent if you can’t afford a competitive salary or to augment the reward package - “cream on top”.
- To align your team to work towards a big goal (e.g. The success of the business or raising your company value ahead of investment or sale).
- To accelerate company profitability.
- To attract partners or investors with specialist skill-sets or expertise.
- To improve employee wellbeing and satisfaction…’the ownership effect’
- To relieve cash-flow issues by removing the need to raise finance or the amount of finance required..
By understanding exactly what you would like to achieve with your share scheme, you’ll be better positioned to maximise the benefits of setting one up. As you move through the process, you’ll be clearer on what the best options are to aid your business goals.
Step 2) Decide who you want to share with.
It could be the case that you’re simply at the stage of sharing equity with one or two partners, but you might be considering sharing your equity with your senior team or the whole company.
These decisions will largely depend on your size and what your overall ambitions are.
However, it might be useful to read up about the ‘Ownership Effect’ before making any decisions. Research has repeatedly demonstrated that sharing equity with everybody on the team has a profound effect on overall business progress and prosperity.
If your team members have an equity stake in the company, that changes their relationship with it on an emotional and psychological level. With a vested interest in your enterprise, your team members will all bring that little bit extra to the table for long-term shared success and reward.
However, if you don’t want to offer everybody on the team equity right now, you don’t have to. Share schemes are incredibly flexible and are entirely to your discretion.
Step 3) Protect yourself.
Regardless of whether you’ve decided to share with a chosen few or the whole team, you’ll need to establish the quid pro quo of your equity share arrangements.
You might want to attract a specialist with a slice of the pie for example, but what happens if they fail to deliver on their promises?
The good news is that it’s incredibly straightforward to set up ‘conditional’ equity so that nobody walks away with a reward they don’t deserve.
Decide what you want from your relationship with the share or option holder. Do you want them to deliver x amount of sales, pull a certain project over the line or increase your membership? Whatever your goal, make sure it is fair and measurable and set this in writing at the first instance.
Doing this will protect you later on down the line. With all the best intentions, hastily thought through equity agreements often go sour.
Protect yourself from the outset by ensuring your equity arrangements are conditional where possible.
Step 4) Learn about types of shares and options.
Now that you know who you want to share with and what you’ll both get out of it, you’ll want to familiarise yourself with available share and option types:
Ordinary Shares are real shares in the business (rather than an option to buy at a later date) and can be given to anyone. They are typically the shares business owners and investors will hold.
Growth Shares are just like ordinary shares but are issued at a ‘hurdle price’ that represents a small premium to the value of the company at that time (often around 10%-40% to reflect the "hope value" of the shares). As such, the recipient only shares in the businesses growth in value from that point on.
Options allow recipients to buy shares at a later date, at a pre-approved price. If you want to set up an incredibly tax efficient share scheme for employees (as opposed to non-employees), then in almost all cases an EMI option scheme is the best way to go.
Your company will need to meet some qualifying criteria to be able to benefit.
If you’d like to read more about shares, options and share scheme types (like EMI), download this free guide here.
Step 5) Set up a call with Vestd to get the ball rolling.
Since inception, Vestd has accelerated company success across the UK. Not only is the platform the UK’s first and most advanced app of its kind, but it’s also the only regulated digital share scheme platform for SMEs and startups.
Vestd also integrates seamlessly with Companies House, making set-up a breeze.
The platform provides a secure, cost-effective way to share ownership with employees, consultants, advisors, NEDs, contractors… and anyone else who is important to the success of a company.
If you’d like to have a chat about your equity plans, book a meeting with one of our friendly equity experts today. As a guided SaaS business, we can help every step of the way.
