How to attract and retain tech talent with an equity stock ownership plan (ESOP)

In partnership with HiBob, we're revealing how to use ESOP to your advantage when it comes to hiring and retaining the best talent for your growth.
Dan Spencer
,
August 4, 2022

We know that attracting and retaining top talent is the biggest challenge for Australian early-stage startups. The benefits of offering equity packages to employees are too hard to ignore, especially as they serve both the employer and the employee in a time of need. 

We recently hosted events together with HiBob, in Sydney and Melbourne that focused on attracting and retaining tech talent. In these sessions, we discussed several strategies that companies can use to help them achieve this goal. As a follow-on from these insightful events, we’re sharing ideas and advice on how to attract and retain tech talent with an ESOP (employee stock ownership plan) as part of your remuneration package. 

This blog will reveal what makes ESOPs a no-brainer, especially for smaller startups with limited budgets, and how to make it a key component in your hiring and engagement efforts.

ESOP trends we’re seeing in the market 

As part of the Think & Grow 21/22 Startup Salary Guide, we were able to discover the following data on ESOPs in the market: 

  • 49% out of 3,200 roles, including non-management positions, were allocated ESOP.
  • Most ‘chief’ roles had a significant stock valuation, most around 2-3x their salary, sometimes around 5-10x in rare scenarios. 
  • 17% of customer service managers were given more than half of their salary in stock value. 
  • For non-executive technical roles (including developers and engineers), 50% had stock value worth over half their base salary. 

Out of all the data that was revealed, these were the notable ESOP trends we saw: 

  • Cash-strapped startups are successfully using equity as an attraction strategy for early executives and technical roles, in compensation for lower salaries. 
  • Employee payouts pre-series A or A+ businesses are trending, assuming a jump in stock price and company valuation.
  • Employers are facing pressure to find value-aligned employees who aren’t just interested in the payout. 

The amount of equity allocated is a combination of three things: 

  • How much of the equity pool is available to the company (usually ~10%), and this is topped up after a raise or when employees don’t exercise their stock. 
  • How valuable and rare the employee is: domain experience, seniority, technical skills etc. 
  • Whether the employee met their milestones/KPIs or stayed for the duration of their tenure—depending on personal contracts. 

The benefits of offering an ESOP 

Offering an employee equity or ownership in a company is given in an addition to their regular salary, in the form of a contract known as an ESOP (employee stock option plan). 

ESOPs are most commonly used as a type of incentive for smaller startups because they benefit everyone. 

For the employer: 

  • Staying on budget: Offering equity options to high-performing talent means you don’t have to take a huge monetary hit when you need to keep the budget strings tight. 
  • Staying competitive: A sound ESOP structure and communication allows you to be competitive for talent against the large companies that can offer higher salaries.
  • Founder mentality: With shares, your employees only prosper if the company does. This will impact how they tackle bumps in the road, approach growth opportunities, and drive more revenue. 
  • Building on the buzz: If a candidate believes in your mission and it feels like the right fit, an ESOP can leverage their decision to be a part of your journey. 

For the employee:

  • Providing a meaningful lump sum: If all goes well, they could receive a life-changing amount of money, enabling them to pursue avenues and ambitions that wouldn’t have been otherwise available. 
  • Giving them a specific purpose in the company: Just having the role gives them a purpose, but this is the icing on the cake and what makes them truly believe it.

How to communicate an ESOP as part of your remuneration packages

To encourage your talent to lean in to ESOP more, you should educate them on what you’re offering and most importantly, what it means for them. Here are some ways you can educate them: 

For candidates in their final stages: 

  • Create a specific intro to your ESOP online package that you can send them which explains what ESOP is and how it can benefit them. Include what you would offer them if they became part of your team. Let them read through this at their own disposal.
  • Schedule a separate 1:1 with them and a HR or financial representative who can review it with them. 

For existing employees: 

  • Conduct regular workshops on ESOP structures and your specific equity packages for when you’re at different stages in the business. 
  • Ensure that your staff are kept in the loop about the latest updates and reviews of your ESOP structures. 

Ways to train your HR and financial team to provide this education: 

  • Conduct workshops with your HR and leadership team that cover the basics of ESOP, including how to communicate it in interviews and to existing team members effectively while showcasing its benefits. 
  • Refer to its psychological aspects too, not just the operational side. Explain that employees aren’t just here to get paid and (hopefully) receive a large payout. Explain that this is a way we can show you that you’re valued and that you have the potential to make a big impact on the company’s success.

Above all, being transparent and communicating clearly are fundamental when implementing and distributing an ESOP for your people. 

In summary… 

An ESOP has multiple benefits, especially for smaller startups with lower budgets. Stay in the game by competing for top talent and building momentum and purpose within specific roles to accelerate high performance. But, above all, use communication and transparency at all times. 

To find out more about how Think & Grow can help you attract and retain high performing tech talent for your startup, contact dan@thinkandgrowinc.com.

Think & Grow are growth partners for bold technology businesses. We utilise our global network, deep market knowledge and best practice methodologies to facilitate sustainable growth across borders, help customers gain their first clients and pave the way for long-term, actionable strategies driving revenue growth and capitalising in undiscovered markets.

HiBob was founded to modernise HR tech. HiBob’s intuitive and data-driven platform, bob, was built for the way people work today: globally, remotely and collaboratively. Sine its launch in late 2105, bob has achieved consecutive triple-digit year-over-year growth, and become the HRIS of choice for more than 2,500 modern, midsize and multinational companies who understand that a powerful, agile HR tech suite is mission critical and a key driver of organisational success. Fast-growing companies across Australia and the world sucha as Seer, Novatti, Airtasker, Gong, Fiverr, and VaynerMedia rely upon bob to help HR and managers connect, engage, develop and retain top talent. 

Dan Spencer

Partner
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