Using equity awards to improve recruiting younger employees

What do young employees want for their benefits package?

Millennials widely support the prospect of being able to customize benefits, with almost three quarters (73%) agreeing this would be attractive to them. It’s important to remember, though, that generally, millennials only focus on benefits once they are sure that their basic requirements on pay and working conditions have been satisfied.

Benefits of equity awards to employees

One thing you’ll commonly see, regardless of the industry, from start-ups to publicly traded and at every stage in between, is some form of employee equity compensation offering.

Employee equity compensation is highly customizable. You can custom-tailor employee equity to improve your hiring process, such as determining when employees receive their vested shares or providing discounts or share matches for a purchase plan to increase employees' financial benefits.

When comparing equity incentives with cash incentives, equity could significantly improve one’s financial wealth if the company stock performed well while the value of cash is fixed. This opportunity can help young employees pay off their student loans, achieve their dreams of traveling or purchasing a home etc. According to a recent survey, millennial respondents were the most likely generation to identify equity compensation as the main reason or one of the main reasons they chose their current employer (53%).

Besides offering employees the chance to earn more money on top of their basic salaries, some equity plans such as employee stock purchase plans (ESPPs) can be a more tax-friendly option than the traditional cash award.

Benefits of equity awards to employers

When you offer an equity plan as part of the overall benefits program, that could positively influence a person’s decision about whether they will accept a job there over another which doesn’t offer equity compensation.

It’s not always possible for small startups to “out-compete” more mature firms when it comes to base salary. Having grown up at a time when it was common for start-up and pre-IPO companies, in the tech industry in particular, to offer their staff a share in the business as an incentive to remain loyal, millennials and other younger generations tend to view equity compensation as very appealing, and is one way that you can impress and attract prospective talent.

Employee equity also improves staff retention since plans can have staggered tranches or maturity dates. Since employee financial benefits tie in with company performance, this type of compensation helps achieve better alignment with your company’s goals.

As it is customizable, you can have multiple equity plans with varied designs to suit different grades of employees. Advancing equity compensation across the wider workforce has long been a common feature, where funds are often tight and there may not be the ability to match wages.

What can employers do?

Although it seems employee equity is a great solution to help recruit young employees, there are a few things you need to consider to make the most of it:

• Align your equity plan with the company goals:
  For example, if environmental, social, and governance (ESG) is one of your company's goals, integrate it into the plan to ensure that your employees prioritize it.
• Understand your target audience (i.e., young generation):
  The median tenure of workers aged between 25 and 34 was just 2.8 years. If your equity awards are designed to deliver to them in 5 years or even longer, the chance that they appreciate the awards will be lower.  So, be willing to adjust the vesting schedules to best attract the desired target audience.
• Start communicating the benefits of equity earlier:
  During your hiring process, you should start communicating about employee equity which may not be familiar to everyone. Again, know your audience – they may not be interested if you only mention the benefits of equity upon retirement. In addition, you should provide multiple communication channels, such as digital brochure, videos and websites, as people receive information in different ways.
• Take their feedback:
  If you find a perfect candidate, listen to what he/she wants and try to be flexible that can be a win-win situation – Employees find the plan attractive and are willing to join the team, and also feel the management is understanding in dealing with staff. You, as an employer, recruit the right person to grow the company. That can also help improve your equity plan design.

Equity awards work just fine, whether you’re a private or public company

It’s widely agreed that companies who value their staff and treat them well will most often reap the benefits.

Highly sought-after staff may find they are offered a stake in the company, the idea being this will motivate them to drive the business to the next stage of growth, be it an IPO or other target, to which their benefits are linked. This tactic can work just as easily in more established, mature companies – whether public or private.