How To Approach The Topic Of Equity Compensation In Your Startup

It’s no secret that part of the allure of working at a startup is the opportunity to build up an equity position in a company with tremendous upside. It’s this ownership mentality that drives startup employees to work harder, longer, and smarter than their corporate counterparts. When everyone is an owner, teams can move mountains.

With that being said, dealing with startup equity grants can be dangerous. Not every employee grasps the value of equity, and not every startup is a path to quick millions. All in all, it’s easier to get the equity portion of startup employee compensation wrong than it is to get it right.

Now that my company, BodeTree, is starting to scale rapidly, I’ve had to spend more time thinking about equity plans for our team members and what it means for the organization. Throughout my process, I’ve come to a few key conclusions that I believe will be valuable to any entrepreneur grappling with the topic of equity participation.

The best thing a leader can do is create wealth for others

When you’re a small company, every member of the team is additive. When you’re a company of five, ten, or even twenty, every interaction and decision impacts the culture of the firm and, ultimately, it’s future. As a result, the performance expectations for early employees are incredibly high.

When you couple these often difficult performance benchmarks with the fact that any equity grant dilutes the ownership of the founders and investors, it becomes easy to see why leaders tend to be stingy with options.

However, I believe that the ability to cultivate a high-performing team and willingly share equity is a hallmark of mature leadership. One of my mentors (who happens to be a board member here at BodeTree), was until recently the CFO of a major national wireless carrier and has enjoyed a long and varied career.

When I asked him about what career achievement he is most proud of, he responded that it was when a custodian at former job thanked him for the work he had done in preparing the company’s employee stock ownership plan. That plan, and the company’s subsequent IPO, enabled the custodian to put all of his children through college, which until that time had seemed like an unattainable dream.

My mentor’s response resonated with me on a personal level, and helped me to realize the power that equity participation can have on the lives of our team members. This realization inspired me to think more deeply about how my organization handles equity compensation and strive to create wealth for the team.