When looking at a job description, it’s often the salary that stands out. But the total compensation is a trickier puzzle to put together, with elements that might not be visible week-to-week, or in a single check.
For one, there’s the total benefits package to consider, including health insurance, vacation days, retirement and more.
Another form of compensation is a stake in ownership of the company itself. Through equity and stock options, companies are offering employees the chance to become shareholders.
In tech, this became among the features of new tools for company-building put into action by post-2008 founders. It was a different model than what’s typically found in corporations, and gained kudos for the show of egalitarianism that’s inherent in offering a bit of ownership to normal employees. Where companies work hard early to realize big returns that come later, this can be especially relevant.
Offering a share of the company can also be a form of compensation during startup days, when higher salaries aren’t an option.
Adam Mustchler, a partner at The Kedar Group who is active in the D.C. tech community, summed up how the CFO of an under-four-year-old company in Chicago that gave equity to employees described it the practice: “If the company [is] to achieve what we hope it will, think of this as a way to bridge the gap of what you might get paid somewhere else. We want you to have a slice of the pie.”
Speaking on how stock options can be a tool to attract, motivate and retain talent at a recent Venture Cafe Philadelphia event, OptionTrax Head of Sales and Operations Elena Thomas said offering an option that promises the ability to purchase stock later at a set price can help to offer employees a longer-term engagement with the company. Since most stock options are granted with time-based vesting, the employee earns the right to purchase the stock over a period of years — typically three to four years in software, with a one-year “cliff” before vesting can begin.