In 2013, Bill Harris, founder of Personal Capital, spoke at a South by Southwest event. There he suggested that stock options weren’t just a pathway to wealth , but the most powerful tool at any employer’s disposal when it came to building a successful business.
The people you want to attract to your business are the people who want equity,” he said. You need people who are willing to take risks. And then you need to reward them.
He noted that for a company there was no cash outlay, and employee’s would benefit from the stock price rising and are protected from its dips.
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However, Harris claimed that businesses struggled with understanding the “maximum value” of stock options. KPMG further emphasised that while equity plans have been a “popular part of the executive remuneration package” for a number of years, the 2008 economic crisis has led to a debate regarding the need for an increase in transparency and disclosure of such incentives.
This hasn’t changed, according to a 2015 FD Recruit remuneration survey, wherein director Phil Scott maintained that companies are unwilling to give away equity share and employers arent aware of the appeal it holds to the FD.
This disparity in understanding was highlighted by the majority of leaders not including such incentives in their company remuneration packages only one in ten FDs currently benefit from it.
Employers are limiting their options, Scott suggested, before citing that equity and share options were listed as the most desirable incentives to FDs and CFOs. Some two-thirds of FDs claimed it would attract them to a role.
The survey also found that for 78 per cent of FDs, performance-related bonuses would go a long way in motivating them to stay. It was suggested that the average bonus paid out was the equivalent of between 20 per cent and 25 per cent of basic salary, and represented between 15 per cent and 20 per cent of total earnings.
Other key incentives included a pension, opted for by 64 per cent of respondents, while 76 per cent preferred medical and dental cover. When it came to flexible and remote working, less than one-third had been offered the option.
According to Scott, the survey served to highlight that employers could use alternative methods to attract staff instead of handing out more cash. Equity shares, he said, also made sure that employees helped mitigate risk on the companys behalf.
Bonuses are a common and effective part of remuneration packages, but it is clear from our survey that equity is highly desirable,” he said. “Companies looking to recruit should use this knowledge to make their proposals more attractive and secure the best individuals.”