Ep. 204 – What You Need to Know Before Giving Equity to Employees

SIBP-Blog-NEW-2Great talent can be expensive. For a cash-strapped startup, offering big salaries and other incentives to attract top talent isn’t always possible. That’s why many companies offer up a slice of the company as part of the compensation package. While this can be a great option in some situations, offering ownership to employees isn’t exactly a risk-free venture. In some cases, it can be a disaster for everyone involved.

In this week’s episode, host and business coach Tom talks about the benefits and risks of offering equity-based incentive programs to employees. As always, Tom is joined by co-host and producer Jason Pyles.

• Show intro, and intro to employee ownership in startups

• Jason’s regrets over not taking an equity opportunity (2:30)

• Is providing equity to employees an obligation? (4:00)

• Equity as a talent-attraction tool (5:00)

• Reasons for offering equity (6:00)

• Considerations before offering equity as an employee incentive (8:30)

• Employee rights versus owner rights (9:30)

• Equity is expensive if the business becomes successful (12:30)

• Negatives of equity incentives for employees (14:00)

• The risks and liabilities of partial business ownership (16:00)

• Tax implications of ownership (17:00)

• “What do I really want out of ownership?” (18:00)

• Equity incentives versus profit-sharing incentives (19:00)

• “The startup crystal ball” (20:00)

• Risk tolerance in entrepreneurship, and Jason’s “dumb mistakes” podcast idea (21:00)

• Tom’s aside about making the bed (25:30)

• Next episode: Implementing employee equity programs (29:00)

• Sign off, and how to contact the show