For some of the under-informed HRs, ESOP is really like a… whiteboard. If someone asked for it, you can tell where it's located but you may not actually understand what an impact that whiteboard could bring to your team.
To begin with, this point-of-view is commonly rooted because of an impression that ESOPs are different than a compensation and benefit plan. Therefore, a lot of HRs are staying away from it and just do whatever founders and board tell them to do. But the truth is, ESOPs are a part of your Compensation and Benefit plan and like any other ComBen element, it would play a significant role in attracting and retaining talent.
Now let's double down on it.
What’s the objective of ESOPs?
ESOP is a part Compensation and Benefit elements that has the power to: 1). Attract top candidates 2). Retain key employees 3). Drive employee performance while spending zero as expenses
ESOP to Attract Talents
It's become increasingly competitive to win the top-candidates nowadays. As a company, often times you are constrained in a salary war. However, with the right ESOP and Buy-Back programs, you can attract competitive talents that is invested in the company for a long run.
Remember, ESOPs are not just there to be a whiteboard. Competitive ESOP + Recurring Buy-Back program would drive candidates to value your company against the high-paying companies.
ESOPs to Retain Talent
Your top-talents are getting noticed by other company (worst, your competitors), they have been offered X times salary increase. yet — matching external salary offers every quarter or so is not a scalable thing to do.
If you can build an ESOP and program it well, your top talents would be able to see the value in staying in your company if they complete the fully vested period. Do not hesitate to extend a follow-up ESOP offer to them.
ESOP to Drive Employee Performance
The most common misperception amongst HR is the idea that ESOPs are only vestable by time period, and that is COMPLETELY NOT TRUE. As an HR you would be able to design ESOP vesting schedule based on performance and milestone. This will motivate employees to drive their performance — as they regain ESOPs.
on top of that, ESOP with the right Buy-Back program would also incentivize people in driving their performance towards the company’s north star metrics. Employees would be able to understand that the better their performance is, the better it is for the company — with that the company value would simultaneously rise and so will their shares.