Why don't more employees ask about equity?

The idea of sharing equity is a no-brainer. Share schemes are proven to increase productivity and improve retention rates.

We've helped hundreds of like-minded founders with the same philosophy share a piece of the pie. But how often does the thought of equity cross the mind of an employee or job hunter?

Think back. How many of your colleagues or friends broached the subject with an employer early days or after? Probably not that many.

There are countless lists online of questions to ask interviewers, but all too often, there’s little advice on how to enquire about equity. 

So, why aren't applicants asking prospective employers whether they offer an employee share scheme?

In a way, it's surprising because, in the wake of the pandemic, our financial habits are evolving. Interest among housebound Brits to invest in the public stock market has increased.

So, if Brits are becoming financially savvy with public stocks and shares, why aren't they asking their employer about private company shares? What’s the blocker?

In this article, we've explored possible reasons why employees don't always ask that all-important question.

There are several factors, from a lack of awareness and understanding to being sold on salary alone, which isn’t always the way to go.

What's holding them back?

1) Lack of awareness

Arguably, the crux of it all. There’s often a lack of awareness among employees about what an employee share scheme actually is. So, let’s start by breaking down this barrier. 

In its simplest terms, an employee share scheme is a way of sharing company ownership with a team, whether that’s the whole team or select key players.

There are two distinct ways of doing this: recipients are either given shares right away or issued ​options​ to exercise later. 

Many types of employee share schemes (and option schemes) exist in the UK, and eligibility largely depends on the size of the business and the industry.

Some are more popular than others and offer additional perks like tax advantages. A prime example would be the Enterprise Management Incentive (EMI) approved by HMRC.

Ultimately, it’s up to the employer to decide which one is best. And in most cases, the employer can set conditions and milestones to be met before equity is released.

But armed with a basic understanding of employee share schemes, employees and interviewees can, at least, start a conversation.

2) Sold on salary

Another reason why equity may not be at the forefront of a person’s mind is that at the application stage and during the interview process, salary is often the selling point. And employers want to appear competitive in the job market. 

Now, make no mistake, we're in the midst of a cost-of-living crisis - we know that salary matters now more than ever. But while it's important, it isn’t everything.

In recent years, we've seen a shift in the expectations of employees and job seekers.

In a survey conducted with YouGov, we asked 2,000 workers what motivates them. Surprisingly, being appreciated and thanked by managers was the top answer, not salary.

And one in three stated that a company share scheme would tip the balance for them if they were in a scenario where they had to choose between two identical jobs.

In this current climate, not every employer can offer a generous salary, pay rise or bonus. Lots of companies are still recovering from COVID-19 losses.

So many are actively looking for alternative ways to reward existing team members and attract new talent. 

One solution is to offer employees shares instead of a pay rise or a bonus. In some cases, shares can be financially more rewarding than just a high salary.

Plus, some schemes, like EMI, are more tax-efficient than giving a bonus too. Both employees and employers then should consider alternative forms of compensation, such as a share scheme.

3) Employers themselves aren’t sure

Setting up an employee share scheme can be complicated.

The traditional method of hiring accountants and lawyers to take care of everything can be costly and time-consuming.

So, we understand why employers may not be forthcoming in talking to employees about equity. And if it's not brought up in conversation by the employer, then the employee may not feel comfortable bringing it up at all. 

Not everyone is on the same wavelength either when it comes to sharing equity. In the US, it's pretty common but not so much in the UK and Europe.

We often hear concerns about dilution and the impact it has on existing shareholders’ shares. But share dilution isn't always something to avoid.

Vestd has digitised equity management to make life simpler. And part of our job is to dispel myths and misconceptions surrounding equity.

We've put together informative guides and other free resources to help decision-makers.

4) Education

On the flip side, even if an employer is banging the drum for their company share scheme, do they have the material ready to educate their team?

We think that sharing ownership should be celebrated, shouted from the rooftops or proudly announced at the office Christmas party. Nothing aligns a team quite like shared ownership.

Employees need to understand what the share scheme entails, the conditions and how shares or options could benefit them in the long run.

Maybe something along the lines of this slide template that we specially designed for SMEs with EMI schemes.

If an employee has access to educational materials, they may not even need to ask - the answer might be in front of them.

By improving overall awareness and understanding, employees will gain the confidence they need to ask their employer (or future employer) about a share scheme.

It's also up to the employer to set up a share scheme, manage it effectively and educate the team. 

If you think a company share scheme is something that your employer would be interested in, why not point them in our direction?