Using Equity Compensation to Motivate Your Employees

If you’re a business owner, then you know how important it is to have a good team.  After all, you can’t do everything yourself, which is why you need to hire great employees and make them feel appreciated for the work that they do.  Aside from regular compensation, some businesses are turning to equity-based compensation to motivate their employees.  (Related topics: exit strategies CT attorney)

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If you’re curious about this type of compensation, then it’s important to know everything that you need to know.  To start, let’s define what it is.  Equity compensation is a non-cash pay that may include options, restricted stock, and performance shares – all of which represent ownership in the firm.  The reason why many business owners are choosing to use equity as compensation is because of the many benefits that it offers.

One of the main benefits is that it motivates employees because the employee’s financial reward is based on the success of the company.  Having this mindset is a great way to motivate your team and encourage them to go the extra mile so that your business succeeds.  In fact, that’s exactly why many start-up companies use this strategy.  Since many start-ups lack sufficient resources to pay high salaries, they compensate their low salaries for equity compensation.  The result is that they get high-quality employees, even though they can’t pay them high salaries (yet).

Although there are many advantages, there are disadvantages that come with it as well.  Along with some business owners feeling like they are losing part of their company, the legal guidelines are also complex.  This means that if the company does not follow these rules, then there can be serious consequences.

If you’re interested in offering your employees equity compensation, you should first talk to a lawyer and discuss whether or not it’s the right option for you.  If you decide to proceed, then your lawyer will help you follow all of the legal guidelines so that you and your employees can have the best possible outcome.