However, as Jason Shaw, principal at the CFO Centre, and Ifty Nasir, founder and CEO of equity management platform, Vestd, explain, it doesn’t have to be a complex task to design a share option scheme that delivers value.

There’s little doubt that share options are growing in popularity and the evidence points to a significant number of benefits of sharing a slice of the pie with your teams. Vestd research shows that 93% of businesses report that sharing ownership has helped with their recruitment efforts, and 95% said that a share scheme has actively improved employee loyalty.

79% of FTSE100-listed companies offer at least one of the four HMRC-backed share schemes, which shows how successful they are. But despite this, just 16,300 startups and SMEs in the UK take advantage of Enterprise Management Incentives (EMI).

So what’s holding startups and SMEs back?

Overcoming complexity

Historically, issuing share options or establishing an employee share scheme would have been a lengthy, expensive and complex process involving lawyers and accountants. Fortunately, digitisation means that equity management platforms like Vestd now exist to remove the legwork and costs associated with launching and managing share schemes.

While these platforms have simplified the process, it is still no guarantee of success. Founders and CFOs still have a number of significant considerations to make sure that their share scheme delivers value in their business.

When Jason works with business leaders wanting to implement a share scheme or change one that isn’t delivering the impact they expected, he uses his framework that looks at three competing priorities. These are exit valuation, exit timeframe, and exit proceeds.

When a scheme is designed effectively, these three priorities should be balanced to create an equilibrium which delivers value for the founder, business and employees, which clear expectations for all parties.

Exit Valuation

The first consideration is the company valuation. There are a number of different ways to value a business, but the most important factor is the valuation that you would want to exit for, which has to be realistic and achievable as it impacts the terms and conditions of the scheme.

Exit Timeframe

When companies issue share options to their employees, they begin what is known as a vesting schedule. This sets out the conditions that must be met before shares are issued. Many vesting periods are between three and five years, or are triggered by an event such as an exit or IPO.

Exit Proceeds

Businesses also need to consider the amount of equity they are willing and able to give away to their teams. Finding the balance between giving your team enough of an incentive to push the company’s growth, while keeping enough equity for further investors will depend on each business.

These three factors are all interlinked and critical to the success of the share scheme. If the valuation is achievable and realistic within an agreed timeframe, this increases the likelihood that options are triggered in line with, or exceeding, performance targets.

If employees aren’t offered enough of a reward for the endeavour, or don’t believe they are likely to see the target valuation, their incentive to hang around and contribute to your success will be diminished.

All of the CEOs and founders that we work with have the best intentions, but thinking about the design and implementation of a share scheme is vital to execute it effectively.

There’s no doubting the power of ownership across a business and Vestd offers a cost-effective platform to make the process much quicker and easier to share a slice of the pie, but it’s just as important to consider the design of a scheme for it to offer real value.