When it’s used well, equity is a lever that aligns and motivate the whole team behind the same goal. But too many early-stage startups fail to make equity tangible and motivating for team members. Often, equity stakes are discussed quickly at the hiring or offer phase of a team member’s relationship with the company, only to be left alone and never mentioned again.
That’s why Ledgy joined forces with Figures, one of Europe’s leading compensation benchmarking companies, to discuss how more companies can begin bringing equity into the conversation right through the year, in the regular course of business.
Participating in the webinar were Ben Brandt, Ledgy’s co-founder and Chief Product Officer, and Virgile Raingeard, Figures founder and CEO. As well as experience helping some of Europe’s fast-growing companies get on top of equity and compensation, Ben and Virgile have both played central roles in setting up Ledgy’s and Figures’ equity plans.
So what did they have to say about the state of equity in Europe and beyond? And what tips did they have for companies looking to get started structuring and scaling equity?
Understanding the context
In recent years, a lot of attention has been paid to the growth of the European tech ecosystem. For sure, more billion-dollar businesses are being founded from Europe and the best global VCs are paying Europe more attention compared to just a few years ago. But to Virgile, who has spent years working in both the US and Europe, equity knowledge gaps are still significant.
To Virgile, “the amount of equity knowledge the average employee has in the US is far greater than the average employee in Europe. I’d even say that a senior software engineer in the US probably understands the nuances and complexities of equity and share options better than an HR manager in Europe, even though they have no administrative responsibility for managing an equity plan or communicating with employees about their share ownership.”
It’s all about communication
This gap in understanding impacts how companies communicate about equity with their teams. For Ben, “equity has to be viewed as a core part of people’s compensation. Even though the overall trend is going in the right direction, equity is still quite often seen as a ‘nice-to-have’ bonus versus being a must-have.”
Starting out, documentation is key. As soon as the equity plan’s rules and standards are defined, they should be part of the company handbook and included in all onboarding processes. Secondly, it is always better to overcommunicate rather than risk anyone misunderstanding. “If in doubt, explain how equity works over and over again,” says Ben, “as this is preferable to someone missing a key piece of information.”
Transparency on the details of people’s equity packages is also critical. Many companies think it’s enough to give people an abstract number to signify the share options they’re being granted, without going into detail on what that number means as a percentage stake in the company or even the value of those options. At Ledgy, for instance, all these details are included in candidates’ offer letters,
Being transparent and open about equity also helps people understand equity’s purpose. “Equity is designed to be the long-term element of people’s compensation,” says Virgile. “It’s essential to be clear about how equity is different to salary, while still being important, as it can inspire people in a very different way.”
Mistakes to avoid
As the stakeholders primarily responsible for executing the equity plans for Figures and Ledgy, Ben and Virgile also expanded on some of the mistakes they’d made, for the benefit of people still setting out on their equity journeys.
For Ben, “I’d definitely say we should have started creating ‘Equity 101’ sessions for our team sooner. Even in a company that deals with equity every day, new starters need a thorough introduction to the basics. Although we’ve now implemented this, I would have loved to start it at an even earlier stage.”
Virgile identified an example from a previous company where increasing the flexibility of equity plans was not communicated in the right way. “If you offer people the opportunity to trade cash for equity, for instance, you really need to make it 100% clear that it is an important financial decision. You have to take the time to educate people about the choice they’re making. If you don’t take people through the policy in detail, they aren’t going to be comfortable making a choice, and so you lose the intended benefit of introducing the policy in the first place.”
Tips for success
To summarise, Virgile and Ben recommend the following tips for companies starting to structure and scale their equity plans:
- Get ready to give equity to all. Progressive and scalable equity policies should start from the expectation that all full-time employees will be granted equity.
- Then, prepare to shout about it, a lot. Overcommunication is key. Even for people in tech startups, there are often knowledge gaps when it comes to equity. It is better to say the same thing twice than risk anyone missing out on important information.
- Start before you think you're ready. If you wait until you've got every fine detail ironed out before talking to your team or setting up your equity plan, you've taken too long. Equity is an evolving workstream for any company – it is never a 'one and done' exercise.
Looking to the future
In a live poll of webinar attendees, more than 50% of respondents said that their teams do not understand the basics of equity and share ownership very well. This sums up the project that European companies have ahead of them: educating people in why equity matters, and making sure that equity plans give people the flexibility and insights they need to feel that their share options really matter.
With best practices and first principles outlined more clearly across geographies and markets, companies will be able to use equity to incentivise and align the team behind one core goal.
Ledgy partners with Figures and many more fantastic companies that help scaling companies smooth out the bumps in the road as they grow. Learn more about our partners.
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