One thing which organisations often ask for help with is compensation as a motivational tool. Often they seek to use equity to motivate staff. This really is a flawed way to operate, and a great way to dilute shareholder value.
Employees who are also owners are more committed and motivated, or so the story goes. If only it were that simple! In truth, they might, or they might not be motivated beyond usual level. You see, compensation is small time. It really doesn’t have the great big effect which people imagine it to.
The reason? People. Everybody has different needs and wants, and money isn’t always the top of the list. Equity can be even less effective. Some staff might want to take on some form of ownership, but others might not care. Still more might actively want to avoid ownership for various reasons. It’s not a shoe that fits all, that’s for sure.
For small, private businesses, there’s even less point. Equity is worth what it’s worth. If there’s no market for the shares your giving away, the value is immediately lower to the recipient. Whilst it might be worthwhile to you, your employees have other ideas. To top it off, every time you give away equity, you give away future value.
If you’re thinking about using equity as a motivational tool, don’t. Use equity sparingly, and only when it has a practical benefit for both you and the employee involved. Anything other than that is a waste of your valuable money.