Planning on motivating your workers by paying them in stock instead of cash? Don't pat yourself on the back just yet.
Offering your employees equity can be a tough sell and is not a strategy for every entrepreneur. While both Apple and Twitter took steps to make more stock options available to employees this month, small businesses shouldn't necessarily follow suit.
Here are four reasons your workers might not jump at the opportunity to take a slice of the pie.
1. Startups are already loaded with risk.
If your company is a young organization with a limited track record, there's no guarantee you'll still be in business in five years' time. Even if your employees have faith in the future of your company, they're likely aware that taking equity instead of cash could result in owning a small piece of nothing.
2. Non-traditional compensation is confusing.
You shouldn't assume that your employees will have an easy time doing a cost-benefit analysis of your stock offer. Some workers at Colorado-based cloud services company Zayo Group didn't understand how the equity grants they were offered would work, the Wall Street Journal reports. Certain employees in Europe thought they were getting a reduction in pay.
3. People need their paychecks.
For some employees, deferring a portion of their paycheck and still meeting their monthly expenses isn't possible. Even if your workers are keen on the idea of owning a small stake in your company, just having the option to trade cash for equity might not be in the cards.
4. Shares have fallen out of favor.
Spreading equity among employees surged in popularity during the dot-com boom of the 90s, but many companies abandoned the practice after the dot-com bubble burst. The percentage of companies offering stock options has also fallen since 2000, according to data from HR services firm Aon Hewitt cited by WSJ. "It's a little bit like paying your employees...in lottery tickets," Dirk Jenter, associate professor of finance at the Stanford Graduate School of Business, told WSJ. "Most people prefer cash."
Even if you can create an attractive proposition for your workers, you should hand over shares for only the right reasons, like giving your employees an extra incentive to accelerate growth at your company. Or, if competitors are poaching your workers by handing out stock option packages, you might consider doing the same to help prevent future turnover.
If you're still torn between whether to offer your workers shares, consider whether doing so is likely to be mutually advantageous, or just good for your bottom line.