employee stock options

Employee Share Options: What Are Its Benefits?

Many companies have offered stock options as part of the employee compensation package.

This plan became widespread in the late 90s as emerging tech companies used it to draw top talent as companies sold stocks to their employees.

Today, many companies still offer stock options as part of their compensation packages. Stock options are not to be confused as a replacement for competitive salaries as all they do is serve as an added perk. Besides, stock options aren’t only available for executives anymore but also many other employee groups of various business sizes.

What is employee share options? A stock option is what a company gives to its employees to buy a particular number of shares in the business at a predetermined price, which is usually lower than the market value by a set date. Employees aren’t obligated to purchase all of the shares or a part of it as noted in the option. It’s their choice, and they can buy anytime during the period set when it’s offered.

Attract and Retain Top Talent

Attracting and keeping top talent is a priority for every business regardless of industry. Many employers realize how it is difficult to retain talented staff. Think of how a successful sports team grow their talent and attract the best players from other organizations. Similarly, employers have to attract the best personnel and give them a remarkable reason to work for them for years.

Offering significant employee stock options helps attract better and more talented employees and keep them in the long-term. Your employees feel more valued in your company when they have ownership benefits. This helps stay longer and build your business as you achieve business goals and targets.

Moreover, your company stands out from the others since not many businesses offer this kind of opportunities for their employees. Make sure that you come up with a way to provide flexibility and other benefits that will suit the talent you want to attract and keep.

Boosts Productivity

Employers can use stock options as a means to keep their employees motivated and stay loyal to the company. Employees tend to become more dedicated to the growth and eventual success of the business when they own a portion of the business.

Additionally, stock options help minimize workplace disagreements and friction between the management and employees. This is because employees realize that their income is proportional to their effort and dedication.

They are less likely to resign from the company due to becoming invested in the company’s operations and overall output. The organization becomes an actual representation of their years of hard work and sweat. Companies that offer stock options to enhance their incentives programs for their employees are more efficient and experience lower resignation rates.

Cost-Effectiveness to the Company

While employees enjoy various benefits from stock options, companies enjoy an increased revenue at a moderate cost. Stock options prove to be an excellent benefit for employees and can be cost-effective companies. Stock options shouldn’t be confused for substitutes for compensation. However, they make a reliable benefits program and create an attractive employment package.

The only considerable costs to the company are the lost opportunities to sell some stock at market value because employees often buy at a discounted price. All together with the ability to attract, motivate and retain top talent, it gives smaller companies a level playing field with larger companies with financial advantages.

Aligns Employee and Shareholder Interests

Under regular compensation packages, employees aren’t involved in the day-to-day business decisions that help run the organization. These are the decisions that directly affect the organization’s financial capabilities and other daily operations that end up eating into the company’s money.
Regular employees in companies usually become relaxed and care less about what’s happening in the company, especially when decisions in the company doesn’t directly affect their income or their welfare in the company.

However, when they own stocks, they understand that what they will do will affect the company. This helps them become more sensible with their decisions and how they use their income to do their jobs well. They also become more prudent with the money and resources allotted to run specific projects.

Lastly, employees become more aware of the financial interests of the company, regardless of their roles or positions in the firm.

Conceptual business illustration with the words employee stock option

Better Option for Small Businesses

One of the benefits of employee stock options is that they aren’t only enjoyed by employees, but by business owners as well. Most small business and startups don’t have enough money and resources to run their day to day operations. This becomes a challenge to the business owners because they have to pay their employees competitive salaries while running on a tight budget. It becomes a tough playing ground for startups, especially when they are targeting to boost their sales.

However, small business owners can manage the situation by offering their employees stock options. Stock options help business owners get more capital through the stocks that are purchased. As mentioned earlier, it will boost employee productivity, and it will also be a cost-effective way of compensating the employees. A small business or startup can hire the best talent in the market while offering flexible compensation and ownership benefits in the company.

Builds a Brand Image

A brand can build a positive reputation and image when stock options are offered to employees. Your company becomes a hub for important business relations, both internally and externally.  Employees with stock options realize that they are the brand ambassadors. This can result in handling stakeholder and client relationships as if their entire lives depended on it.

Final Thoughts

Stock options have been around for some time, and many companies use it to make the employee compensation package attractive. This option also gives companies and employees other significant benefits. Small organizations and startups also attract and retain top talent even on a tight budget.

Employees become more motivated and productive as stock options also help to align their goals to the interest of the company.