Using Equity To Attract Talent To Your Start Up: Issues To Consider
Equity can be a powerful tool for startups. In particular, a clever entrepreneur can use equity to attract talent to his or her business. Here is a look at how that is done and what needs to be considered along the way:
Using Equity to Supplement Salaries
Equity can be even more valuable than cash when trying to attract new employees. When a business offers its new employees or founding members stock or equity shares, it attracts people who are willing to take a risk. When employees are personally vested in the company, it also encourages them to be more committed to their work.
Educating Employees about the Value of Equity
Unfortunately, not all employees are aware of all of the benefits of receiving equity from a startup rather than salary. However, by presenting the right information, you can help your employees in understanding the benefits of equity shares. For example, equities are not taxed like wages, and they have the potential to net the employee much more money than a standard salary agreement.
If your employees make money of their equities, they may be able to claim the earnings as capital gains rather than income tax earnings, and ultimately, that can reduce their tax burden and put money in their pocket. To provide your employees with comprehensive education about the value of equity shares, consider having an income tax accountant present an educational seminar to them.
Dividing Equity Fairly
Even if all of the partners understand the benefits of equity shares, it can be hard to know how to divvy them up. Ideally, companies should offer employees a level of equity that matches their role in the company. People who are working at the same level should get the same number or value of shares.
Vesting Over Time
When a startup is writing its equity policy, it should vest equity partners slowly over time. This ensures that everybody doesn’t cash out their shares at once, crippling the company. Ideally, employees should receive some of their equity the first year, a bit more the next year and so on. This method incentivizes employees as the company grows and reaches certain goals or milestones.
If you want to learn more about how to use equity to attract employees or how to pay employees with equity, contact an accountant, such as Capital Accounting And Tax Service Inc, today. If you are an employee who has been offered an equity-based contract, you can also contact an accountant with questions about the tax implications of this type of arrangement.