Now more than ever, scaling companies have to think creatively and ambitiously about compensation. Businesses and hiring managers are going the extra mile to offer employees attractive benefits and packages in a fierce market for talent.
At Ledgy, we know exactly how important equity is when it comes to making employees happy. Companies cannot expect to hire top-tier candidates by offering a “competitive” salary with no additional benefits beyond a statutory pension.
Share ownership is one of the most effective ways to align the incentives of growing companies and talented people. And the benefits of offering equity are not restricted to the hiring phase.
Share ownership positively affects retention and cultural alignment. In our State of Equity 2022 report, nearly three quarters of employees with share options said their equity stakes made a real difference to their motivation at work.
So we wanted to take the idea of equity one step further. This year Ledgy has begun offering employees the option of exchanging a portion of their salary for increased equity. We believe that this step is fundamental to creating an environment where compensation is a two-way conversation. So what are the key aspects of the initiative? And why is it important to Ledgy, and potentially to more companies in the future?
How does it work?
All full-time Ledgy employees are eligible to exchange up to 15% of their salary for a grant of the equivalent value of options at the latest company valuation.
Should they choose to, team members can exchange salary for equity at certain intervals in the year:
- New starters get the chance to take up the offer as soon as they join, whenever that falls in the year;
- The offer is renewed at annual reviews, meaning that everyone gets the opportunity once every 12 months.
Do the shares vest?
The option grant vests monthly over one year, to account for the monthly salary that was traded. For employees with under a year’s tenure at Ledgy, there is a 12-month cliff in place. If team members with more than one year under their belts choose to exchange salary for equity, there is no cliff.
The share options granted in exchanges are treated in the same way as the initial option grants Ledgy makes available to every employee. Ledgy offers regular exercise windows for employees, and when employees exercise their options there are the usual tax implications. The shares are taxed as per regulations in the employee’s country of residence.
There is one obvious warning we make very clear during this process: any decision to increase equity is a relatively high-risk investment in an early-stage company, and the value of employees’ equity can go down as well as up.
Why does this matter?
We strongly believe that the way companies reward employees has to change. Despite progress in recent years, compensation is still too static, with salaries, bonuses and benefits allocated at the discretion of the employer.
One way we can start to change this at Ledgy is by giving employees more say in how they are compensated. It is totally up to each individual to decide whether they want to exchange salary for equity. We were excited that when we rolled out our scheme, more than half the Ledgy team opted in to the exchange.
Too often, people make few or no choices when it comes to their equity stakes. Empowering people to make choices on their compensation help them reflect more deeply on what equity really means to them, ask the right questions and being an active investor in the company.
By making compensation more dynamic and more engaging, we hope we’re setting a useful precedent for other companies who are looking for ways to empower their team and hoping to turn compensation into a competitive advantage.
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