Experts from Vestd, one of the UK’s leading equity management platforms, predict that sharing ownership with employees will be a key trend over the next 12 months to reward teams, and keep them engaged and motivated.

CEO and founder, Ifty Nasir, explained that this could be the year that business owners begin to really understand how they can unlock the power of their company’s equity and how it can benefit them and their employees.

He said: “While the UK continues to ride out the recession, it is a tough and uncertain time for small businesses and startups, but that doesn’t mean they shouldn’t still be looking to move forward to achieve success and growth,” said Ifty.

“The current economic situation might be tricky but founders can still be thinking of ways equity and employee share schemes can help them attract the right talent and retain them too, as not only are engaged staff likely to stick around, but it’s far more business-savvy to keep your current employees happy too.

“As employees look for higher pay and bonuses to help them cope with the cost of living increases, businesses need to think about the most effective ways to reward their teams and motivate them to perform. Share schemes are like the keys to unlocking new levels of employee engagement, and startups or SMEs who don’t consider these options in 2023 could be missing out.”

Ifty has shared his advice for founders and CEOs to use equity to their advantage this year:

• Use equity as a way to attract talent. In the early stages, startups often lack the capital to offer high competitive salaries or large benefits packages. Offering equity to employees is one way to leverage your company when recruiting and help you stand out from competitors.

• Have a more meaningful alternative to outdated employee benefits. Unlimited holidays, pizza parties and discounts are among the incentives put in place to try and attract talent, but they can be seen as trivial and lose their impact when every business is offering the same things. Using an employee share scheme to entice new employees can be more effective in keeping them motivated and dedicated to your company.

• Equity is important to retain talent. It can be used to motivate employees and give them long-term incentives to perform well by getting them fully invested in the success of the company. This is also known as ‘the Ownership Effect’, which Vestd is a true believer in. There’s no better way to retain your staff than to recognise their talent by providing them with a share scheme that will make them feel proud and part of the business.

• Equity can drive performance. Equity comes in many forms - EMI options, growth shares, ordinary shares and unapproved option schemes  - and they all offer different advantages. Biggest of all they give teams a slice of the action and studies have shown that employees who are also shareholders work harder, because they feel directly responsible for the value of the company. This motivates them to offer their best work and take more responsibility for the performance of their co-workers too. Plus, founders can set specific milestones before any equity is actually released to protect the business and incentivise teams to meet targets.

• Look into Enterprise Management Incentive (EMI) schemes. Following the Prime Minister’s re-commitment to these schemes last year there could be much greater adoption of them by growing startups in 2023. It means teams can continue to benefit from huge tax advantages offered by this option scheme and has been shown to improve employee retention, while also increasing productivity and team alignment. Companies themselves can also benefit from these tax benefits too, not just employees.

• Shift to exercisable options rather than exit only. If you do set up an EMI scheme there are two options for when your teams can access their shares - exercisable or exit-based options. We believe exercisable options, where teams have a predetermined price over a period of time, are the most beneficial. This helps to have everything laid out in a vesting schedule which allows teams to manage performance and gives them a clear picture of when they can receive and exercise their shares.

• Stay transparent and fair. As with anything like this it is important for companies to effectively communicate the value of schemes, as well as the risks. It is also vital to show equity agreements with specific, measurable and tangible goals so employees know what they should expect and offer educational materials so they can understand the process.