Managing employee stock programs can be a major challenge for early-stage companies. As a founder, you have a lot on your plate, and maintaining a stock program can take up more hours in the day than you are willing—or able—to sacrifice. But with the right platform, an employee equity program doesn’t need to be prohibitively time-consuming. Learn how the right equity management software can be a partner in managing these programs and provide financial guidance throughout your company’s journey.
Why offer employee ownership?
Offering employee ownership is beneficial for early-stage companies for a few reasons. Companies just starting out often don’t have the resources to offer competitive salaries compared to the compensation packages of more established corporations. Employee ownership programs do not put a major financial strain on an early-stage company, and they are a great incentive to attract the right talent. The prospect of growing with a company and sharing in the wealth of its success attracts energized employees who are inspired by the company’s mission. Employee equity also boosts retention; employees feel a personal responsibility towards the company and are committed to working there until they are fully vested and can buy their shares.
Though there are many reasons why offering employee stock is beneficial, perhaps the more important question is, can you afford not to offer employee equity? If the goal for your business is an exit or IPO but you don’t offer employees any equity, you will have a higher turnover rate as employees move to companies that do offer equity. If you have loyal employees who stay with the company until you become a publicly listed company but don’t have any equity, they could leave once you go public. They won’t receive any of the benefits of the IPO and likely will have a sour taste in their mouths because they don’t feel valued, despite putting years of work into the company. If you want to build a company that’s going to grow alongside its employees, you’ll need to offer employee stock awards.
How do you get started with an employee equity plan?
If you’re in the very early stages of your business, you may be an LLC. To become a more mature company that can offer equity and eventually grow to reach an IPO, the first step is to officially become a corporation by transitioning to a B Corp or a C Corp.
Next, you need a formal stock plan document that has been approved and adopted by the Board of Directors. You will also need to put together a grant agreement to communicate to the employee what type of award they are receiving, the price of the award, when it will vest, and any other important information. A representative from your company and the employee will both need to sign this document so that there is a clear record of both parties agreeing to the contract. This contract can become an important document, especially at the time the employee leaves the company or at exit. Ensure you keep a signed copy.
Setting up an employee ownership program is an official process that requires thorough documentation. When companies reach IPO, it is not uncommon for current or former employees to misremember the grants they’ve been promised. It is also not uncommon for early-stage companies to be lax about how they offer ownership. Communications happen through conversations, phone calls, or email, and it is difficult to find proof of the initial agreement. To avoid any kind of legal or logistic problems in the future, thorough documentation is a must.
Employee ownership programs can be complicated—but that doesn’t mean the process needs to be complicated for you. With the right software, all of this information can exist in a secure, user-friendly system. Let’s explore some other ways the right equity management system can assist you throughout your company’s life cycle.
Making the climb
Different features of equity management software guide your business throughout its climb, from initial founding to exit, and partnering with the right software can take you to the peak of your journey. The various stages of this journey can be defined by a few milestones along the way.
In the early days of your company, you will need a software that can assist with the initial setup of your employee ownership program. Pick a software that can manage many different types of awards. The system should also have the capability to automate grant agreements. With the power of AI, creating, circulating, and collecting grant agreements can go from taking days to taking seconds. The system should also support secure e-signing for both the company and the employee. After the grant agreement has been signed, the platform should have a way to securely store all this documentation so that both the employer and the employee can easily access the information when needed.
Once your company has a solid foundation, you will need an equity management platform that helps you maintain your employee stock program. How many shares do you have left? Are you going through the shares faster than anticipated? Do you need to go to the board to secure more shares to continue hiring according to your plan? With the right software, you can answer these questions in seconds through an intuitive dashboard and modeling functions.
Equity management software also provides your employees with the ability to view and understand their equity. What type of grant did they receive? What is the estimated value of the employee’s shares today? How is that value projected to change over time? Rather than spending your time fielding all of these questions from your employees, they can log in to their portal and answer these questions for themselves. The right software will also let companies customize how much visibility their employees have so that you can have full control of your company’s financial information.
As your employee ownership program matures, an equity management system can show you how many of your employees are over 75% vested in their shares. Why is this important to know at a glance? When employees reach this marker, they are likely to begin considering alternative employment if your company isn’t prepared to offer them further incentive to stay put. If the majority of your best talent falls into that range, your business could lose these critical employees to a competitor. By keeping tabs on the vesting schedule of your employees, you can prepare yourself for possible personnel changes or begin considering additional incentives.
If an employee is fully vested, they can exercise their stock option award online through the same equity management platform. In their transition from employee to shareholder, they never need to leave the system. Instead of using the platform to understand their employee equity, they can view and manage their investment through the cap table.
Astrella, the partners that will take you to the top
Astrella is the leading equity management software to take you and your employees to the top. Maintain employee equity programs, manage your cap table, and get key visibility through dashboards and modeling to reach the exit of your choosing. Astrella is not merely a vendor; they are a partner that offers expert guidance throughout the entire life cycle of your company.
Ready to make the climb with Astrella? Speak with a trusted expert to get started today.