Offering employees equity shares in the organization is one of the best methods for fostering loyalty and attracting new talent. Not only is it a growing benefit offered by the organizations, but it is one that has attracted a lot of loyalty from employees.
Here we look at the pros and cons of offering equity to employees, and whether organizations can continue with this practice in the foreseeable future.
Advantages
Giving employees a key stakeholder position in the organization has numerous benefits. Some of these advantages are:
Less Cash, More Benefits
Not many organizations have the kind of cash reserves to give a plethora of cash benefits to their employees. What they can do instead is give their employees a share in the ownership of the business. This benefit would get the loyalty of all of the employees, without the organization having to splash a lot of cash, which they obviously don’t have excess of.
Aligning Financial Interests
Equity-based programs align the financial interests of all employees with that of the organization they are working for. Employees often don’t have a keen eye on the financial stability of the business they are working for, because it doesn’t have immediate repercussions on their financial abilities. However, if they are given equity in the business, they would want to see the company succeed and would work towards achieving that.
Limiting Turnover
Employee equity programs can reduce the rate of employee turnover. Many equity programs come with a 4-year bond, with a one year cliff period, which means that the employee will get nothing from the program if they decide to leave after one year. This can keep your top-performing employees with you for a longer period, as they appreciate their interests in the company.
Disadvantages
Where there are numerous advantages of an equity-based program, there are a few disadvantages as well. Some of these include:
Complicated Task
Regardless of how you structure your program to be, equity-based financial benefits are really complicated to structure and manage. Your HR department might have to work together with the financial department before offering equity to your employees.
