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2015-12-18 00:00:00Funding & FinancingEnglishRewarding Your Employees: Salaries are one way to pay your employees for their hard work, but how do you go about showing them your... Your Employees with Company Shares

Rewarding Your Employees with Company Shares

2 min read

Salaries are one way to pay your employees for their hard work, but how do you go about showing them your appreciation? Bonuses and salary hike two very attractive options, but some companies have chosen a more ‘equitable’ employee appreciation route, so to speak: acknowledging their employees’ hard work by making them company shareholders.

There are multiple benefits to choosing this approach, and both you and your employees stand to gain from it.

For employers

No cash drain: Rewarding your employees with customer shares is, in some sense, more economical for the organization. This is because, unlike bonuses or raises, you’re not dipping into your cash flow.

Employee loyalty: To look at it a little cynically, you are in a sense buying your employees’ fealty to your company when you make them shareholders. You can choose to impose restrictions and conditions on their initial ownership of the shares. One of the stipulations could be that they are not allowed to sell their shares for a certain period of time. Another would be that they run the risk of forfeiture if they leave the company in a similar window of time.

Your employees’ literal financial investment in the company makes leaving for ‘greener pastures’ that much less likely. Alternatively, you could also hold out the promise of shares as rewards to employees who are willing to work for the company for a certain period of time.

For employees

Employees too benefit from this type of reward or incentivization scheme. They feel a sense of ownership, a genuine sense that they have a ‘stake’ in the company. This sense of ownership has several positive outcomes such as better performance and output. According to a study, there is a marked change in employee behaviour and a company’s overall performance:

  • An 18% hike in productivity
  • A 12% increase in customer approval ratings
  • A 37% drop in absentee rates
  • 16% more profitability than competitors

You can set certain parameters for rewarding shares, by treating it like an incentive programme:

  • Link it to performance; for example, like achieving a particular milestone
  • Award it on the basis of seniority to employees who have invested a chunk of their lives in the company

There are a few more things you should consider as the head of a company before making this move. You should account for the following developments prior to making your employees company shareholders:

  • The potential impact that a fall in share prices could have on your employees and their performance. It could demoralise them and have a negative impact on employee retention
  • The costs associated with administering this scheme
  • Giving employees a false sense of hope that they stand to make ‘big bucks’ or strike it rich when share value appreciates
  • Dilution of your ownership of the company. This may not be a deal-breaker for you, but it is nevertheless something you need to take into account

Think it through carefully and consult with a lawyer on this matter as well. This is a well-regarded employee incentive scheme that is truly worth considering.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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