Loading...
Answers
MenuWhat's an alternative to equity based compensation that recruits, motivates and retains employees?
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?
Answers
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/
Great people want to
1) work on something they find worthwhile
2) work with great people
3) work in a management system that lets them do those things without lots of hassle (bad management systems - see Dilbert for lots of examples).
Money and benefits matter but especially for retaining people providing an environment where they can take pride in their work matters more. For recruiting it matters but is often difficult for potential employees to appreciate.
Post on hiring
http://management.curiouscatblog.net/2007/08/06/hiring-silicon-valley-style/
Post on building a great team
http://management.curiouscatblog.net/2014/05/29/building-a-great-software-development-team/
As far as motivation, if you hire and manage right this isn't something you need to do. You need to eliminate de-motivation not motivate
http://management.curiouscatblog.net/2006/04/20/stop-demotivating-employees/
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
Related Questions
-
Business partner I want to bring on will invest more money than me, but will be less involved in operations, how do I split the company?
Cash money should be treated separately than sweat equity. There are practical reasons for this namely that sweat equity should always be granted in conjunction with a vesting agreement (standard in tech is 4 year but in other sectors, 3 is often the standard) but that cash money should not be subjected to vesting. Typically, if you're at the idea stage, the valuation of the actual cash going in (again for software) is anywhere between $300,000 and $1m (pre-money). If you're operating in any other type of industry, valuations would be much lower at the earliest stage. The best way to calculate sweat equity (in my experience) is to use this calculator as a guide: http://foundrs.com/. If you message me privately (via Clarity) with some more info on what the business is, I can tell you whether I would be helpful to you in a call.TW
-
What is the best way to write a cover letter to an early-stage startup?
Better than a cover letter is to actually proactively DO something to help them. It'll show them not only that you've researched them, but you're passionate about the startup and worth bringing on. A man got a job at Square early on for just making them a marketing video on his own (back before they had one). Since you're a web designer, design a stellar 1-pager that's targeting their message to a particular niche. Something they could use on social media or something. If they're like most startups, they're not interested in reading cover letters. They're interested in passionate individuals who can add value to the organization.AS
-
How much equity should I give an engineer who I'm asking to join my company as a co-founder? (He'll be receiving a salary, too, and I'm self-funding)
You will find a lot of different views on equity split. I haven't found a silver bullet. My preference/experience is for: 1. Unequal shares because one person needs to be the ultimate decision maker (even if it's 1% difference). I have found that I have never had to use that card because we are always rational about this (and I think us being rational is driven because we don't want a person to always pull that card cause it's a shitty card to pull) 2. When it comes to how much equity, I like Paul Graham's approach best: if I started the business by myself, I would own 100% of the equity; if xxx joined me, he/she would increase my chances of success by 40% (40% is just an example) at this moment in time. Therefore, I should give him/her 40% of the company (http://paulgraham.com/equity.html) 3. In terms of range, it could go between (15-49%) depending on the level of skill. But anything less than 15%, I would personally not feel like a cofounder 4. Regarding salary and the fact that you will pay him/her, that's tricky but a simple way to think about it: If an outside investor were to invest the equivalent of a salary at this exact moment into the startup, what % of the company would they get? (this may lowball it if you think the valuation is high but then again if you think you could get a high valuation for a company with no MVP, then you should go raise money) One extra thing for you to noodle on: given you are not technical, I would make sure a friend you trust (and who's technical) help you evaluate the skill of your (potential) cofounder. It will help stay calibrated given you really like this person.MR
-
I'm having problems with ideation for a startup, I'm a web developer, what needs of yours aren't being met? Or how can I find a big problem to solve?
It's really ill-advised to solicit your vision from anyone. In my 20 years of building, investing and supporting tech companies, I don't know of a single success story that has it's origins in someone with your approach. Running a tech startup is incredibly hard. It demands sacrifices few are truly able to make and come with it tremendous risks that most people are unwilling to take. It sounds to me as if you want the startup life because you have an impression of what it's about but haven't yet experienced it first-hand. I'd encourage you to first join an early-stage startup. Developers are incredibly in-demand. Find an entrepreneur who has some experience, funding and a compelling vision that you believe in and get to know what the journey is really like.TW
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.DK
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.