1.2 How much equity do you want to give to your employees and when do you want to give it to them?
Once you have established why you want to give a share of ownership to your employees, it is important to consider how much to give to them, and when to do so. It is important to also consider if you will offer shares as a percentage of an employees salary – it is not uncommon for employers to implement shares as an actual percentage of a workers salary.
At this point you need to distinguish between your long term goal of employee held equity (i.e. how much of the organisation you eventually want in the hands of employees) and how much equity is appropriate to offer when you first roll out your ESS.
> Long Term Goal: Whilst your organisation might want to offer more or less equity depending on your unique circumstances, most SME’s start off with the aim to eventually offer around 5-10% equity if you are a listed company and 10-50% if you are an SME (50% and over is where the owner is passing over control to his/her employees).
Determining how much of the organisation you want held by employees helps to shape the trajectory of your ESS whilst also providing context for when you start planning out the details of your plan.
> Initial Equity Offering: Most companies tend to offer an amount annually however this amount does vary depending on the work force size and number of shares on issue.
For an ESS to be sustainable it is usually necessary to increase the percentage of employee owned shares over time to ensure you have enough equity available to offer new employees as your organisation grows. This also keeps employees engaged with the promise of more equity being available to them in the future.
Note: It is common for companies to start with 100 shares on issue before they implement an ESS. Therefore it is wise to increase the number of shares on issue, ensuring that you have sufficient shares for more shareholders to join. This might translate to the creation of a million shares, with each share holding having a lower par value (value per share).
Key Point
Decide on what percentage of your company you wish to eventually put in the hands of your employees, then consider how much equity might be appropriate to allocate when first launching your ESS.
Workshop Task 1.2
1. First, note down what percentage of your organisation you eventually want owned by your employees.
2. Now pick a year (around 10-15 years into the future) that you wish to fulfil this long term goal by.
3. Next, experiment by allocating different amounts of starting equity to your ESS and then consider how this impacts how much equity you are left with to allocate year on year (towards fulfilling your long term goal).
4. Now, work out equity allocations based on a percentage of salary and what this looks like over time including the potential increase in the number of your employees over time.
