Businesses that have teams which are talented and want them to stay longer to contribute in the growth of the company prefer to distribute equity shares among the employees so that they feel a sense of ownership in the company. Doing so is highly profitable for the company as well as the employees as this promotes growth in the company and helps in developing assets over the course of time.
Here are the significant reasons behind promoting equity sharing with your team. Read below to know more:
It helps in retaining the best talent
One of the major reasons behind sharing the equity with the executives is to retain them for a longer period of time. This is because with the equity shares comes the authority of ownership which gives the power to the investors to have a partnership in the firm. The major goal of this strategy is to have the stake in the company when its shares rise which would eventually benefit all. These days it has become common for the executives to own at least 7% to 10% of shares in the company.
Promotes growth in the company
As the team members of a company own stocks in the business, they feel a sense of ownership and would stick around for a longer period of time. This means that the employer would be able to take their help in achieving the goals of the business and thus this would eventually promote the growth of the company. So, if you are interested in making more money for a long-term, you should consider equity sharing in your team.
Imbibes the sense of ownership among the employees
Employees right at the bottom line of the organization to the ones at the top eventually get a share in the profit made by the company which imbibes a sense of ownership among everyone. In this way, you can achieve an alignment with the employees in an organization and make a profit at a much faster rate. Having a share in the equity eventually keeps the employees motivated for work and kindle their willingness to give their best to achieve the goals of the company.
There are two approaches to sharing equity with your team which are as follows:
- Direct Ownership
One of the major approaches to share the equity with people is to give those shares or equity in the business or on the other hand provided them with the opportunity to buy the stock from you which is also referred to as direct ownership. With this, you allow the employees to have access to the voting decisions in the company and get a share in the profit of the business.
- Providing them the stock appreciation right
Apart from the direct ownership, employees also get the chance to practice the stock appreciation right or SAR that is also referred to as the phantom stock. The idea behind this is that the employees do not have the power to own the stocks and the business still own them but you give them the power of stock appreciation. Thus when the company gains huge returns on the shares, the investors also get the benefit per share.
Both of these strategies come with their share of advantages and disadvantages and should be considered only after consulting a tax advisor who can guide you in taking the right decision.
At last, if you are interested in investing in the best people in the company and want the business to grow exponentially, giving the team a share in the equity finance is a great idea.