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Employee Equity Incentives: The Pros and Cons

Employers can inspire workers through employee equity incentives, which involve giving employees stock in the company. By giving employees a reason to care about the business, they can help improve the company by being more productive.

Here are the pros and cons of employee equity incentives than an experienced corporate lawyer understands.

Employee Equity

Pro: Why Equity Works

Incentives help both employers and employees achieve their goals. Employers increase productivity while employees get bonuses. A motivated workforce can be the company’s most powerful asset. One way to award employees is with stock options or restricted stock. Employees will then be motivated to do everything they can to help the company succeed.

Shares in a company are usually not cashed by employees for a long time. This type of compensation allows a company to conserve cash. At the same time, equity offerings can attract top talent that ordinarily would not settle for a lower salary. Equity also attracts long term career planners, which reduces the pace of turnover.

Con: Equity Concerns

Equity plans are typically more complex than paying employees cash. Due to restrictions, a tax efficient incentive plan does not always benefit entrepreneurs. This complexity goes against the goal of young companies to keep their business simple. The more complex your business is, the more likely you will need a corporate lawyer for guidance. You want to make sure that as a business owner you do not give away too many shares in your company.

Another problem is that not every employee wants to own stocks. They may not know about how stocks work or they may have done research and found out that not all stocks increase in value. Most workers like to be paid upfront with cash. Some workers do not want to put their trust in a company’s future.

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Keating and Lyden

Keating & Lyden LLC was founded by attorneys-at-law, Robert J. Keating, and Thomas P. Lyden and is based in Boulder, Colorado, and Bellingham, Washington. The attorneys specialize in providing legal advice in real estate matters to businesses and individuals pertaining to real estate management and operation including: tenancy in common agreements, partition agreements, real estate financing, homeowner’s associations and land use issues. They also provide the highest quality legal services to small business owners and entrepreneurs.

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