Generally favoured by, but not limited to start-ups and tech companies, employee share options are a way to offer your employees a portion of your company\u2019s potential. You offer your employees a grant, which gives them the option to purchase a certain amount of shares in your company, for a certain price. Let\u2019s say, \u00a31 per share with a period of 3 years before they vest, i.e., how long they have to wait.<\/p>\n
You\u2019re a startup, with a revolutionary idea \u2013 three years later, the share price is \u00a310 per share. The employee still only has to pay \u00a31, and they can sell them for the full price, \u00a310. That’s a lot of profit. Besides, employees usually don\u2019t have to put down their own money to pay for the shares \u2013 they pay the cost out of their profits from the sale.<\/p>\n
That\u2019s it. It\u2019s a pretty simple idea when it comes down to it. Let\u2019s take a look at why they are so important.<\/p>\n
This is a phrase that is tossed around a lot, but it\u2019s usually left to people\u2019s imaginations as to why it is such an important benefit of staff equity schemes.<\/p>\n
Employee share options mean that your employees will think like owners. After all, they are owners \u2013 even if their options haven\u2019t been vested yet, they are still going to earn a portion of the company\u2019s potential. Just like you \u2013 like managers and owners \u2013 the better the company does, the greater their reward. They are going to be far more likely to weigh their decisions according to what will help the company best.<\/p>\n
Imagine two employees. One has share options, her name is Mary. The other does not, his name is John. Both are accountants. One day, one of their colleagues comes up with a better way to input data \u2013 it\u2019s more manual, and is a bit harder to do, but it’s more than manageable and it cuts costs significantly. So, it\u2019s better for the company but it takes more work. Which employee do you think is more likely to implement the new process, Mary or John?<\/p>\n
Mary, of course. You could issue a memo, and make the new process mandatory, but how often does that really influence employee behaviour? More importantly, how often does it influence behaviour without <\/em>grumbling? Mary wants to do it, because the better the company bottom line, the better value her share options are. That\u2019s why share options are so beneficial \u2013 they\u2019re positive reinforcement.<\/p>\n