A startup founder’s guide to allocating equity grants – TechCrunch

In the war For talent, equity compensation is more important than ever, but it is not the easiest concept to explain, especially in privately funded companies.

Equity is not a new concept. Public and private companies use stock options (or RSUs) to hire, motivate, and retain talent for decades. However, equity compensation has become increasingly important when it comes to hiring, retaining, and aligning incentives across all employees, not just CEOs.

This happens for several reasons:

  • Global shortage of tech-skilled workers: Candidates with the in-demand skills now get multiple offers and can practically set their prices. This price, quite often these days, includes some kind of stock component.
  • Wage Inflation: Labor shortages and market dynamics cause significant wage inflation. Companies are looking for ways to increase total compensation while holding cash. Equity is one way to do this.
  • Increased focus on private assessments: The number of companies that have reached unicorn status is increasing. According to CB Insights, more than 900 companies globally have achieved unicorn status, and 2021 alone have minted more than 450 rhinos, up from the previous high water mark of 111 in 2019.
  • Transparency about compensation: Compensation data can be accessed. Historically, companies like Glassdoor have provided solid salary data for more mature organizations. Now, companies like AngelList provide both salary and stock comparison for startups.
  • Expectations: More than half (53%) of millennials say that equity compensation was the main reason or one of the main reasons they took on a job.

Leaders need to improve their understanding and clarity not only of the importance of justice but also of how it is defined. Let’s start from the beginning.

An ownership mindset is good for both business and morale, which is why many founders choose to allocate a certain level of equity (even a small portion) other than in leadership roles. Leaders may have the vision, but they need a team to implement and materialize their ideas.

Think strategically, think ahead, communicate – make sure you are delivering the right stock allocation, for the right strategic reasons, and for achieving the right goals.

Design your own capital program

Once you’ve decided that stock options will be a component of your overall reward package, it’s time to define your philosophy and design your stock program.

Sizing compound stock

First, you’ll need to determine the size of the employee’s options pool. You will need to formulate your ideas prior to discussions with investors, who may require the creation of a larger pool of options than is necessary if your proposed pool is separated from your hiring plan.

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