When Mailchimp sold to Intuit for $12 billion last month, it generated headlines, but many of the articles around the announcement were less than positive. Its 1,200 employees denied stock options and so missed the potentially life-changing financial benefits of a merger of this scale.
We are well aware that this is not the norm. Most firms follow a conventional procedure for issuing employee stock, but it is a complicated structure. The industry has even invented words like “golden handcuffs” to characterize one of the all-too-common scenarios in which workers have millions in stock options but cannot afford to leave their present business before a liquidity event like an IPO or acquisition because of the taxes they would due. The current state of employee equity is not likely to last much longer. Companies are becoming more competitive on base income, incentives, benefits, and workplace flexibility as the talent wars continue. In the struggle for talent, equity will very certainly be the next thing to alter.
The most competitive firms will not only provide their employees with the equity they deserve, but will do it in a tax-advantaged, risk-free, and highly customized manner. We agreed early on in our quest to establish Postscript with my co-founders Adam Turner and Alex Beller that an ownership plan that prioritized workers would be a primary focus. We had never done something like this before, and we were not following the script, so it took some time, study, and imagination.
Our initial attempt was to provide staff with a longer period to exercise. If someone has worked for the firm for two years and decides to leave, they are not required to purchase stock immediately. They actually have up to five years to make a decision. This is a terrific choice for employees who want to “wait and see,” since it reduces their risk and protects their equity. The next part of our program was developed in response to requests from employees who were optimistic about our long-term prospects. We devised a strategy that permits employees to execute their stock options early – at any time. This is a fantastic alternative for workers who are confident in our performance and want to take advantage of the tax benefits of purchasing their shares early.
We do not make assumptions about each employee’s personal situation or impose our opinions on anybody with these two initiatives. We also take care not to make future promises that might affect decisions, as we witnessed with Mailchimp. Even though well-intentioned, we do not believe in definitive assertions like “we’ll never go public” or “we’ll never be acquired.” There is no way for a CEO to accurately anticipates the future. Here are a few crucial insights we learned along the process for firms looking to overhaul their employee equity plan:
Obtain the support of your board of directors.
The first stage should be a conversation with your board of directors, which should take place at the next board meeting. This group of people generally owns many stocks in the company, so they are just as involved in the decision as the founders are. The pushback will be reduced if you begin with the business advantages that the changes might have on recruiting, culture, and morale.
Obtain legal assistance from outside sources.
After the primary parties have come to an agreement, bring in the specialists. Find a law firm or legal consultant who understands employee equality, unless they are already on the team. They will have to think of everything and create new papers and contracts if they do not currently have them. Our legal advisor was instrumental in ensuring that our plan went off without a hitch.
Increase the number of employees and candidates who are educated.
Finally, the employees involved in the program, as well as the recruitment teams, should be well versed in it. It is their obligation to make sure those workers and prospects understand the program operates and the consequences of their actions. Because equity is complicated and difficult to comprehend, this project should not take lightly and should be continuous. I believe that, over the next several years, employers’ attitudes on fairness as a reward will alter, and that flexibility will become the standard rather than the exception. This is wonderful news for both employees and employers at the end of the day.