WARNING! Don’t Give Your Employees Regular Equity In Your Business
Most business owners say they regret giving their employees ownership. It took me eight long years of running my digital agency to figure out a program that could encourage and reward my employees.
It doesn’t matter what you build or sell; your business can’t grow without people. I knew that keeping my teams moving forward together meant the difference between winning and losing, but I didn’t want not want to give up any ownership in my company. Many owners opt for giving their employees ownership because this allows the employee to feel like they own party of the company – that they matter. They just don’t work there. Question: Should you give them equity in the company? What does that even mean?
- First, by giving employees equity, you are handing over everything you have already built. They are sharing in past success, in addition to all assets such as the vehicles, tools, general expenses, etc.
- Second, business owners also need to be transparent financially. All “owners” have the right to review the company books.
- Lastly, the owner needs to seek an independent evaluation of the share value. There is no ready market tool to valuate privately owned shares, so the owner needs to seek an independent valuation.
When I was growing Solar Velocity, these items didn’t appeal to me. I wanted to do something different. I wanted the key employees to be rewarded, but not share my ownership of the company. So we developed a key employee program. In the event of the company being sold, the key employees are given a certain percentage of the purchase price. This worked for us for several reasons:
- Payouts were only given in the event of the business getting purchased.
- We didn’t have to give access to all our financials.
- If the employee left for any reason, their allocated stock amount was eliminated.
I highly recommend you looking at this option for rewarding your key employees.