Stop the leak – How to retain staff in a competitive market

A top priority for companies, regardless of industry, is employee retention. In a competitive market for talent, keeping your top performers motivated and not seeking opportunities elsewhere is essential. For HR teams looking for advantages employee equity compensation could offer one such edge.

Why employee retention matters

There are many reasons why you will want to retain your employees. Consider the negative implications of losing high-performers to competitors, loss of skills and knowledge and also the hassle and cost associated with replacing them. In other words it’s a double-whammy – you lose the contribution that individual brought and then, even if you manage to replace them with someone similarly skilled, there is an expense, time and money, associated with recruitment.

It should come as no surprise to read that such scenarios are best avoided. Far better to be in a position where you are retaining top talent, as opposed to needing to replace key people who have been lured to competitors.

Employee retention strategies

So, how to go about it? How to make what’s on offer at your company attractive enough to provide a sufficient bulwark against competitors convincing your people to leave?

Different companies will take different approaches. Some may offer incentives around, for example, health insurance, career development training, flexible working arrangements and wellness programs.

While some combination of the above may well prove useful, one of the most effective ways to create greater loyalty in the face of offers from the outside can be to embrace employee equity compensation.

Employee equity compensation and retention

Introducing or expanding employee equity compensation can often lead to many positive outcomes, both for employer and employee.

For the employee, a stock plan offers the opportunity to hopefully make a significant profit at some point down the line, whether arising from being granted free stock or given the opportunity to purchase company shares at an attractive price and/or benefit from generous tax treatment.

From the company perspective, one of the advantages of equity compensation is that these initiatives will usually involve locking participants in for an extended period of time, i.e., they promote retention. For example, introducing an equity plan where shares vest over time and can only be exercised after a specified number of years, with forfeit clauses in place should an individual leave during the term, can incentivize employees to remain rather than miss out on a full reward.

Employee equity compensation and employee engagement

Equity compensation can also help to boost employee engagement.

• Greater alignment with company goals: When employees participate in a stock plan, their priorities and those of the company can become more aligned. Having signed up to a plan that gives them an active stake in the company, they may make a more direct connection in their mind between their output and the performance of the company, leading to both parties sharing a desire for the business to succeed.
• Increased engagement: A natural follow-on from greater alignment is increased engagement, as participants who cultivate an ownership mentality can in many instances see more clearly how their efforts can directly impact that of the company
• Improved performance: When people are genuinely interested in their work and link their own performance to the company’s fortunes, that can translate into those individuals stepping up their efforts and becoming an even more effective performer in the workplace.

Choosing the right plan

The above is predicated upon the assumption that you choose the right equity compensation plan- type to meet your needs and those of your employees, whether that’s executives only or all employees. There are many different stock plan types available, including:

Stock Options:

• Participants are given the right to buy a specified number of shares at a set price in the future.
• Options can be offered globally.
• Depending upon the rules in the country where a participant is based, options can be taxed at grant, vesting, exercise, and/or sale.

ESPP:

• Shares are offered at discounted price.
• Usually an all-employee plan.
• Used around the world, but rules may vary between jurisdictions.

Restricted stock:

• Restricted Stock Awards (RSAs) and RSUs
• RSA: Granted at outset.
• RSU: No shares go to participant until vesting.
• RSAs receive more favorable tax treatment.

For more on different stock plan types, see here.

What next?

Making the right employee equity compensation choices can go a long way towards aiding your efforts when it comes to employee retention. When individuals feel well rewarded, they are more likely to perform to a higher standard and be content to stay with their existing employer.

If you want to explore the possibilities around what employee share plans might be suitable for your business, contact J.P. Morgan Workplace Solutions today and speak to our experienced team.