People are guided by various motivations in both their professional and personal lives. When we talk about the professional sphere, there are three main categories of motivations: salary – which covers current expenses and drives us to work according to expectations; bonuses – which can finance holidays, cars, housing – in this case, employees are incentivized to go beyond expectations; and equity participation through ESOP, which has the potential to enrich employees. The latter form of motivation can be seen as holistic, contributing to the well-being of employees as well as the prosperity of the company. In this scenario, employees benefit from dividends if they are distributed, or from a share of profits when the company goes public or is acquired.

This way of rewarding employees transforms their perspective from one focused on improving their own skills to one oriented towards the overall success of the company. The ESOP encourages employees to go beyond their own specializations, to think beyond what they know how to do. For example, a programmer who knows someone who would be a perfect fit on the team may recommend them to HR or may attract new clients. Such initiatives can support the company’s growth, even if they don’t directly affect the employee’s salary.

From the very beginning, it is ideal for entrepreneurs to consider ESOP tools

 Initiatives of this kind are common in the technology sector, where we are seeing rapid company growth. The model appeared in the United States in 1956 and with the rise of

Microsoft – in the early 1980s – it boomed. There are well-known stories of employees who, having been paid in shares instead of cash because of the company’s financial restrictions, have accumulated greater fortunes than some managers. Many of Microsoft’s early employees became multimillionaires in dollars because of this benefit. So the model originally adopted in the US crossed the Atlantic about ten years ago to Western Europe and is now starting to gain ground across Europe.

I think it’s always a good time for a company to offer such rewards to employees. The question for entrepreneurs is how extensive this plan will be – whether they want to include all employees as shareholders or just a selection of them. But it is clear that from the beginning it should be considered an ESOP tool, as it is extremely valuable for both the employee and the company. For employees, it represents a substantial income prospect, unavailable through salary or bonuses.

The company will benefit from increased attachment and motivation from employees, who will no longer see the organization only as a source of salary and benefits. They suddenly gain both the perspective of an employee and that of a co-owner. They begin to understand aspects of the company much more deeply, not just logically, but emotionally, thinking: “It’s my company too, and together we want it to do well”.

So we’re not talking about large percentages of shares on offer, we’re talking about numbers. As a rule, the percentages given to employees are minimal, for example 0.1% of the company. It is not about giving significant percentages to a limited number of people, but about distributing as many shares as possible.

In general, there are two models of ESOPs: every person in the company can own shares, motivating everyone to excel, or only certain categories – either management (or from a certain level upwards) or a department. There are also approaches whereby sales specialists might benefit more from bonuses and less from ESOPs, as they are often seen as motivated by immediate and tangible benefits. This being the case, the stock option would be reserved for those whose contribution to the good of the company is more difficult to quantify.

Sources: TheRecursive