How to communicate the granting of employee stock options to an employee?

B3GIN Team
07/03/22
B3GIN - Employee stock-options Australia

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The feeling of belonging and responsibility is one of the key points to recruit, motivate and retain your future employees. Putting together a good communication plan or how to use employee stock options to maximise buy-in and trust.

How to communicate the granting of employee stock-options to employees?

 
 
1. Introduce employee stock options on the job posting.
 
Employee stock options are one of your secret weapons to attract talent. It is important from the first interaction with your company (i.e. on the job offer) that your future employee knows that employee stock options are part of the overall compensation package, the benefits you offer.

Some startups present employee stock options as “free shares of the company” on their job offers. However, there are significant differences between employee stock options and free shares.

Be factual, precise but without giving too much detail to avoid confusing the candidate.
 
 
2. Explain in the first interview with the candidate why you are granting employee stock options

One of the characteristics of employee stock options is to give employees a sense of ownership and to associate them with the future financial success of the company they join.

Just as the culture of your start-up is one of the keys to attracting the best talent, employee stock options are an important asset. It is therefore important to explain to candidates why you have decided to share part of your capital with your employees. You should explain how the value of the employee stock options is linked to the company’s results and how the employee stock options strengthen the team’s results.
 
 
3. When discussing salary, explain the basic principles

This part is often a turning point in the relationship you will have with your future employee. Both in the salary negotiation process and in the explanation of what employee stock options are.

A fixed monthly salary is very simple to understand. The aim is to make employee stock options as easy to understand as possible while being as transparent as possible: to simplify the mechanisms of employee stock options by outlining the specific plan for your startup.

On the other hand, you need to be careful on a few points. Two examples:
– the future value. Do not make any promises about the value of the employee stock options in the future, at the end of the vesting plan for example
– the date of grant of the employee stock options. The employee stock options will be granted when the board of directors validates them. Explain this to the candidate so that the new employee does not feel forgotten when joining your company.
 
 
4. Signing the employment contract

This is the final stage of the recruitment process. The candidate signs the employment contract.

During this stage, your future employee may have questions about the employee stock options he or she will be granted. Be attentive and only answer questions for which you can provide a precise answer.
 
 
5. The signing of the shareholder agreement

Very often, unfortunately, the signing of the shareholder agreement and the employee stock options contract is seen as a mere formality by the founders (or the human resources person). It is recommended to use this moment to make sure that the employee understands the different details of the employee stock options plan.

First of all, organise a meeting with the employee. Show that the moment is important for the employee, but also for you and for the company. If possible, organise the meeting yourself. Secondly, by explaining the key concepts of the plan, in particular the current value (the strike price) of the employee stock options. Indeed, the price of the employee stock options will be stipulated in black and white in the contract and it is really at this point that the employee will see the price at which he or she can potentially exercise the employee stock options.

Finally, leave a record such as a leaflet with the explanations of the plan. Simplifying the plan and explaining it shows your transparency.
 
 
6. Review stock options at the annual review

An employee’s annual review is a highly anticipated moment.

Especially after the first 12 months. And this period coincides with the first vesting of your employee’s stock options. If your plan is, as in most startups, to grant the employee stock options over 4 years, the first 25% will vest when the employee celebrates their first anniversary with the company. Showing the employee the importance of this moment will increase his motivation. The following month, the employee will be granted 1/36 of the remaining stock options in his plan.
 
 
7. Do a monthly review

If all your employees have stock options, holding monthly company-wide reviews allows employees to understand current financial performance, celebrate wins, review strategies if necessary and move forward together.

Organising these monthly meetings maintains an atmosphere of transparency, allowing managers to share their views and employees to feel comfortable bringing forward ideas and questions.

It also allows employees to understand how the value of stock options is evolving.

Give your employees the opportunity to be involved in the future financial success of your company.

This is an effective way to show them that you value their contribution. It motivates them to be fully involved in the success of your company. And what better way to do this than with a stock option plan that employees understand?

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