employee equity compensation in tech startups
July 15, 2021
January 16, 2021
July 15, 2021
January 16, 2021
Lucinda Pouw leads the People team at Secfi and is responsible for leading Talent Acquisition, Development, and HR in Amsterdam and San Francisco. Throughout her career working at various startups, she learned the importance of understanding stock options and the impact they have on attracting and retaining talent. Here — she shares some insights as well as the best practices employed with both potential and current employees at Secfi.
It’s easy for me to sum up my favorite part of my job as Director of People at Secfi. I love people and I really enjoy watching people grow with a company. Working for a growing company is as exciting as it is challenging. You need exceptional skills to thrive in a very dynamic (aka messy) environment where priorities are constantly changing. To look for those skills in candidates and to make sure those skills blossom while employees work at our company, is my passion.
I am uniquely equipped to understand the needs of startup employees, because I’ve been a startup employee for the last six years, working at various startups and scaleups from the U.S., Europe, and East Africa.
The first time I received stock options as part of a compensation package, I knew nothing. I simply didn’t have enough financial knowledge to understand my stock options. So, I went on a personal quest to understand how stock options work.
And as a result, I found myself in a role helping others understand how to evaluate equity compensation packages when receiving an offer, how to decipher their potential value and how to weigh the advantages and disadvantages of exercising them.
Throughout this journey, I’ve come to learn that not only are stock options important for attracting and retaining employees, but making sure candidates and employees understand their stock options is equally valuable.
I never expected that one day, I would work for a company that empowers people like me to make informed decisions about their equity. But I’m so glad that I do!
Stock options are a great way to make an employee really feel like a part of a company. Almost every candidate I speak to says they want to have a visible impact with their work. This is the thing that attracts people to startups.
With stock options, you can make this impact more personal. You can have an impact on the company and you can create a real impact on your own life. The employees take part in the company’s success by having a financial stake in it.
One of the main roadblocks I experience during recruitment, is that there is a huge knowledge gap in the startup world regarding stock options.
Some candidates who have had stock options from other companies have some background knowledge and usually ask a lot of in depth questions on the options package. But in most cases, people have a hard time understanding equity. If they don’t understand equity, this benefit starts to lose some of its appeal.
The even bigger problem? Candidates are often reluctant or afraid to ask for help understanding their stock options. They tend to feel they should have knowledge surrounding how stock options work — which isn’t true.
One way to help candidates better understand the potential benefits of their equity package is to explain the difference between options and shares. Many startup employees don’t realize that they first need to exercise their options before they get shares. It can also be helpful to outline the tax implications of exercising.
When working with candidates, I aim to get ahead of this problem by introducing them to the resources they need to make the career decision that is right for them. At Secfi, we plan an additional “Equity Call” for every candidate we make an offer to for the sole purpose of explaining and answering any equity related questions they may have. I also make sure that the candidate’s offer letter communicates clearly what the potential value of their equity is.
Similar to how explaining the value of stock options to candidates can help attract them, making sure current employees understand their equity options can help engage and retain them.
Stock options hold a lot of value. But this value exists by the merit of understanding. If you offer equity, why not offer your employees the support they need to unlock the value of that equity?
At Secfi, we have an Internal Equity Academy that works to educate all of our employees on their options and how to make the most of them. Our employees aren’t in their equity journey alone.
When employees have a better understanding of their equity, they’ll feel empowered to make the right choices that can potentially have a huge financial impact on their lives. Which is a win-win for both employees and employers.