Five big mistakes business owners make when setting up an Employee Share Scheme
Keep it simple. As a business owner, you want the financial interests of your employees as closely aligned with yours as possible. Give an employee shares (or an option) so that they do well if the business does well. That’s often complicated enough. A confused employee is not a well motivated employee.
No follow up
Your employees will become business owners, or have the potential to become so. Treat them that way. The key motivation from owning shares or holding options is the prospect of financial success. Unless your employees feel engaged (for example by reporting to them on strategic decisions or finances) then it’s just another bit of paper.
Focus on individuals not the team
Star performers don’t work in a vacuum. It’s common to identify a star performer (whether a key exec or passionate sales team member) and give them a significant slug of equity – say 5%. But can it divide a team? In our experience, numbers can be less important than the principle. 4% to the star and 1% spread between the rest of their team can bind that team together.
Big numbers can demotivate if not delivered. Particularly when building your team from scratch, your focus is always on the next recruit, and getting them to sign on the dotted line. It’s common to see owners make promises in offer letters, and then realise they have an entire team to motivate, and so try to row back on their promises. Hold back on specifics until you’re certain.
Give with one hand, take with the other
You can be generous in the headlines, mean in the small print. Don’t be. There are lots of tricks to achieve this: diluting employees, attaching near impossible conditions or providing excessive wiggle room. Has the employee not noticed if they don’t mention it? They may be looking for another role. Use shares to build trust, not destroy it.
RM2 can help you with all aspects of employee share schemes, from the bigger picture to the detail. Get in touch if you’d like to speak to one of our advisers about how equity can help focus employees and create a successful team. Call us on 0208 949 5522, or email email@example.com, and we’ll be happy to set up a call.