How can equity drive employee performance?

Not long ago, stock shares distribution to anyone besides top management was simply unheard of. Luckily, in the Silicon Valley it is a common practice and many companies use this attractive perk to seduce and retain talent.

When a good equity plan is implemented, real benefits can be observed. Employees tend to feel rewarded and it creates a sense of long-term value amongst them. It also encourages people to think about the company’s success and associate it with their own success.
A good equity plan should consider new hires, promotions and outstanding performers. Most companies focus on new hires and fail to motivate people to align their personal goals with the company’s goals. This is important when companies want to link variable pay with performance evaluations and promotions.

The idea is to build ownership, to encourage the employees to think like company owners. This is the fundamental principal behind an equity plan. The company’s success is the responsibility of all employees and should be tied to their performance goals.
A fair equity plan offers a transparent and consistent programme of equity grants that employees can build into their long-term expectations.

A well-designed equity allocation plan works for both the employer and the employees. The plan creates a tremendous incentive for people to stay at a company without costing the employer too much. That’s the kind of win-win to which we should all aspire!

Finally, the equity plan should be based on clear objectives for each year of the plan, with numerical and quantifiable metrics that are easily assessed. It should also have a duration. I believe it should not be shorter than 1 year and no longer than 5 years. This is a great tool to retain talent and to avoid attrition/ turnover.

Lastly, it is also a great way to remain competitive in the market. It will help attract talent and it is a selling point for the organization, especially in the highly sought after tech industry of the Silicon Valley.

Thank you, Rebeca Gelencser

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