I plan to bootstrap and keep my company private with no plans on selling. What's an alternative to equity based compensation that recruits, motivates and retains employees? Should we increase benefits?
Before we dive into the equity,salary and such. Motivation and retention begins with the CEO.
Ask yourself what is the culture of the company? If you don't know anything about culture then start with the basics:
1. Do you value employee opinions? Do you ask for others opinions?
2. Do you encourage people to listen to employee problems? Do you listen to what other people have to say?
3. Do you encourage others to come up with ideas and suggestion?
4. Can you sell your dream?
5. Can you build consensus?
6. Hire people for their strengths and fix their weaknesses
7. Don't assume shit, always ask
8. Treat your interns like employees and mentor them
9. Have a clear vision and be able to articulate it
10. Can you admit when you are wrong? VERY IMPORTANT
So if you have a strong company culture this will help with new hires, motivate, and retain talent.
The frosting on the cake is free food/snacks, happy hours, company paid healthcare benefits, etc.
Trishul is on the money here. At RTC, we are powered by love. And not some hippy-dippy approach to culture that is all pie in the sky. We seriously love our employees by taking great care of them, honoring their dreams, and ensuring that they LOVE their work every day. That starts with the CEO and how leadership lives by example. It is felt in how many clients we turn down to protect our staff from "jobs" that would be unfulfilling. Listen carefully to your staff. Mentor them into greater leadership roles. As you grow, offer them benefits and maybe profit sharing. An investment in culture now will pay off in spades later.
A lot of great answers.
It's been my experience, that a lot of solid feedback and encouragement goes a long way. I want my team armed with all the skills they need or want to do a great job and if they want to pursue something on their own, then I've done a great job as their "boss", because they've grown. If they leave for another job, then who am I to tell them they should stay. Something wasn't motivating them or I was doing something wrong. That said, I have had a lot of people go away in situations where it wasn't my company and then when I went out on my own, they came back to work for me again.
I challenge my teams to grow beyond their comfort zone and I reward them for accomplishing growth. Sometimes the reward is simple and enthusiastic acknowledgement to them or the company and sometimes its financial or perk based.
I do think profit sharing in one form or another is a great way to help motivate your team, but it will never be enough alone to motivate people.
One of the benefits of being growth minded for your team, is that no matter what happens, you know that you've been a part of helping them as a person.
I once worked for a woman that reprimanded me as a VP for being friends with my team, while I watched everyone around them fleeing the sinking ship except for my friends on my team. Everyone is different, but I can't help but become involved in my team's lives and for that I get a lot of rewards.
As a startup, you have a lot to consider and it depends on the talent you need. If you need developers for a technology product, then you are going to have to compete on wages and benefits and it may be difficult to recruit without equity unless you have a solid and followed profit sharing plan. You can though also compete on culture, atmosphere and team dynamics. If someone interviews with you and your team and walks away excited about your mission, your product, and your people, then it may follow that higher wages and equity aren't required initially. If you are a one-man band and bootstrapping, you are going to have to also prove that your vision has legs and that you can drive revenue. Lots of folks will join a risky startup, if the backend rewards can be significant, but you will have to prove a little more potential stability if you want them to invest their career in you.
Sorry for the rambling brain dump. Feel free to follow-up with me if you have any questions.
Equity compensation serves a purpose as a Long-Term Incentive. Alternatives include long-term cash (including performance-based cash), higher base pay, some form of profit sharing (although perhaps not a formal "profit sharing plan") and synthetic equity.
Research shows that benefits generally have little impact on recruiting and motivation. They can be effective bolstering retention.
The first question I would ask is what do you believe equity compensation is intended to deliver? This will help define the hole you are trying to fill with one or more alternatives.
Also, remember that there are key benefits to equity that most other tools cannot provide. Among these are potential tax planning strategies for participants, and creating a low, fixed compensation expense for the company. There are, of course, downsides as well (like communication issues), which I would be happy to go in a different forum.
Short-term incentives may also serve your purpose, if they are structured well.
Lastly, I would ask why you DON'T want to use equity compensation. There are many legitimate reasons, but I find that many companies avoid this tool out of myths and misunderstanding.
Lots of great answers here on motivation and there are many (well seven really) ways people are motivated. Should your question seek an answer more closely aligned with the economic motivation of an equity share, perhaps a lesson from our crowdfunding experience will help. We often counsel entrepreneurs (who, like you, are seeking to gain committed motivated folks) that a revenue royalty approach may be best. In fact to preserve more control, avoid diluting ownership or otherwise impeding later rounds of funding, and to know in advance the most such a motivation will cost you, a share provided to each person of the revenue might be an attractive option. In the context of an employee this is the well proven model of a commission. No surprise there. Thinking about how other stakeholders in your organization, such as partners, suppliers, just plain believers might be motivated to help you achieve your mission. Sure you could rely on commissions but what if the spouse of your employee is a better salesperson than they are? Just some food for thought if you are seeking an alternative to the "stock options" motivator and the resulting complications.
For myself, I'm always looking at the total package. What's the work/life balance like? How much does the company culture fit what I'm looking for? Etc. When you consider factors like this, you realize there are ways to make a job more attractive without offering a higher salary or more equity. Examples: 1) A MacBook Pro 2) A home-office snack budget each month 3) A book budget for continuing education Etc. All of these small things add up eventually to create a total value that in the end costs less for an employer but is more attractive to a prospective employee. If you need examples, Buffer does a great job offering extra perks which you can see here: http://jobs.bufferapp.com/
Consider this saying:
Employees marry the company and divorce their management.
If management is micro-managing, abusive, etc, no matter how well you pay, no matter how great the job, people will leave.
Make sure they feel like they are at home and its a family atmosphere. They will be spending more time with you than with their real families. As such, make outings a part of the corporate atmosphere. It does not have to be expensive, get everyone together for a cookout, picnic, start local teams like bowling, etc.
When someone has a baby, get everyone together to celebrate it. On birthdays have one or two people decorate the person's cubical...but remember you can't do this selectively it has to be for everyone or you will kill moral.
Best of all, in front of everyone, recognize the good work of others. Napoleon said, quite correctly: It is amazing what men will do for a piece of cloth.
He was referring to ribbons and awards, these are worn on the uniform and show one's accomplishments to his peers.
Likewise, if you have to chew someone out, do it in privacy, without an audience.
Many of companies face challenges attracting, motivating, and retaining top executives. To alleviate those challenges, most public companies have some kind of “equity-based” long-term incentive program (LTIP) in place for top executives. LTIPs reward executives for their contributions to value creation as measured by increases in share price. Although private companies face the same talent challenges as their public company counterparts, equity-based compensation is not prevalent among private company executives. There are two primary alternatives to equity based LTIPs: (1) phantom stock and (2) performance units.
Phantom Stock: Phantom stock is like restricted stock. In this program, participants receive annual “phantom stock unit” grants. The initial unit value is based on the company’s book value, a formula, or as determined by an external valuation. After the stock units vest, participants receive a cash payment equal to the full value of the units (plus any appreciation) times the number of units underlying the grant. Vesting can be time-based, tied to a participant’s retirement, or tied to a sale, merger, initial public offering (IPO), or other liquidity event. Phantom stock is based on enterprise value creation and is typically not tied to individual performance goals. As is the case with restricted stock, if vesting criteria are met, phantom stock will always deliver value to the participant. Phantom stock encourages retention and provides a long-term performance orientation.
Performance Units: In this program, participants receive annual “performance unit” grants. The initial unit value can be formula-based, tied to an external valuation, or assigned an arbitrary dollar value. Each grant has a three-year performance period. Unlike phantom stock, individual and company performance goals provide the funding basis for performance units. Performance units are worth nothing if a threshold level of performance has not been attained; upside opportunity is possible (e.g., 150% of the initial unit value for maximum performance levels). Participants receive a cash payment equal to the number of units underlying the award times the “per unit” value at the end of the performance period. In general, participants must be employed at the end of the performance period to receive an award. The “overlapping” performance periods inherent in the program’s design encourage retention and provide a long-term performance orientation.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath