3 Reasons to Include Stock Options for Business Employees
Finding and retaining top talent has always been a challenge for growing companies, and it has traditionally been accomplished by offering generous salaries and bonuses. In recent years, more and more companies have started to offer stock options instead of financial incentives to attract qualified candidates and hold onto key employees. Here are three reasons why offering stock options is a good idea.
1. Stock Options Give Employees a Stake in the Company
When employees receive stock options, they feel like they have a stake in the company. If the company is successful, the value of its stock will increase. Employees with stock options understand this, and that understanding makes them work harder to make sure that the company reaches its goals. This is why productivity often improves significantly when employees are offered stock options. When employees have a financial stake in the company, they become more engaged and committed.
Employees with stock options often think of themselves as owners rather than workers, which encourages them to put their personal feelings aside and support the company’s mission and policies. Employees with stock options also tend to go the extra mile. When a company’s compensation and benefits packages do not include stock options, employees have little reason to do more than they are being paid to do.
2. Stock Options Save Employers Money
Offering employees stock options instead of higher salaries or bonuses frees up cash that could be used to develop new products or services or market existing products or services. If the company is seen as having great potential, stock options may be more appealing to prospective employees than a generous salary. This is why startup companies with limited resources usually offer stock options to attract qualified and talented candidates.
Offering stock options can also help a business to raise capital. If the company is successful and its stock price rises, employees are more likely to exercise their stock options. This provides the company with money that can be invested to spur future growth.
3. Stock Options Improve Employee Retention
Most employee stock options vest over several years, which means employees with options who quit leave money on the table. If an employee is paid a bonus, they can quit the following day and not lose any money. This vesting period gives employees a reason to look past minor irritations and inconveniences, and it encourages them to focus instead on the success of the company.
Stock options are especially effective at improving employee retention when a private company is successful and is expected to make an initial public offering. An IPO can make a company’s share price increase substantially, which means employees with stock options could be walking away from a significant windfall if they decide to pursue other opportunities.
Everybody Wins
Offering stock options provides benefits to both employers and employees. Employers save money that can be used to improve their businesses, and employees with a stake in the company feel valued, work harder, and are less likely to quit.
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