Giving Equity to Your Employees: Why they need to understand it to appreciate it.

How does a company communicate equity incentive awards so their employees truly appreciate and understand the value of their equity award? 

Companies always have a purpose or objective when they award equity compensation to their employees. The ‘purpose’ is often spelt out clearly in the equity plan or scheme document.

The three most common reasons are:

• Employee Retention – employees must continue to work for the company to benefit from their equity awards.
• Long Term Incentive – employees must earn the benefit of the equity awards typically over three to five years.  This is not an immediate reward, but an award that will be earned over time that will hopefully increase in value and may be impacted by the employees’ hard work for the company
• Link to Shareholders – as potential shareholders employees will act more responsibly in terms of the financial health of the company, which should lead to an increased value of the company’s shares

Grant/Award Communication

The process begins with the initial communication of the grant or award. This can be handled in various ways. The most effective way to communicate the grant is via email with a link to a website. The employee can then access the website to see the grant details and accept the grant online. The benefits include:

1. The ability to highlight and communicate the key details of the grant, such as the number of shares, price, vesting schedule and term, and the ability to have the grant listed in a statement outlining the key details of the grant.
2. The ability for the employee to return to the site at any point to access the formal grant agreement.
3. The ability to provide specific FAQs for the employees to better understand their awards.
4. No paper, no postage and no manual burden of creating and distributing paper grant agreements that may be lost or misplaced.
5. Clear audit details as to when the grant information was accessed, when the grant was accepted, plus the ability to easily follow up with employees that have not accepted their grants.
6. The option to provide instructions to print, execute and give postal details when a paper agreement and ‘wet signature’ is required.

Company Branding and Culture

The company should have the ability to communicate or reinforce its identity and culture as part of the equity award communication process.

New technology enables the Company to:

• Brand the Equity Portal so that it mirrors the company’s own website’s colors, fonts, wording, images, etc. The equity award website is shown as an extension of the company’s own website.
• Post a message or video from the CEO or from the company. It could focus on the benefits of equity compensation and what employees need to know about their equity grants. It could cover what employees can do to increase the value of the company. Or it could be a general message about what is going on in the company.

Grant/Award Value

Employees need to understand the current and potential future value of their resulting equity to truly understand and appreciate the current and potential future value of their grants or awards:

•  A good equity website will reflect the current value of the equity grant based on the latest market price of the underlying shares.
•  Access historical market prices and graphs on company share price performance to enhance employees’ appreciation of their equity grants.
•  Equity award calculators allow employees to estimate the potential future value of their awards and help them estimate potential tax consequences.

Global Challenges

A global equity incentive plan includes additional challenges such as different languages and different currencies.

To ensure that global employees understand and appreciate their equity grants or awards:

An equity compensation website can be made available with translations of the text content on the website and allows for an employee to choose the language that will be used when he/she views the website.

For employees to truly appreciate their equity compensation, they need to see the details of their awards in their local currency.

A good equity compensation website should allow participants to:

• View the current value of the awards in their local currency
• Model the potential future value in their local currency
• Access and print transaction history (including taxes paid) in their local currency

Training and Communications

An item that is often overlooked or not given enough consideration is employee training on their Equity Compensation. The ability to communicate and provide education to employees can make all the difference in successfully communicating the value of equity awards.

There are many easy and effective ways to do this, including:

• Training videos have become very popular for employee equity compensation program training. The videos can be short, effective and inexpensive to produce. These can be easily accessible on the equity compensation website portal for employees to view at their convenience.
• Online Communications with employees related to their equity compensation can be challenging, but with the right system you can email all participants simultaneously, or a select group, and easily monitor whether or not specific actions have been handled. The right equity administration system will provide the ability to follow-up specifically with those participants who have not completed specific tasks, like accepting their grant or making a tax payment method election.

Employee Surveys

One of the keys to a successful equity compensation program is to periodically gauge the effectiveness of the program. This is best done through an employee survey. Then based on the results appropriate changes can be made to the training and communications, or the program.

The right service provider can assist the company with creating an appropriate survey.

The survey should be easily accessible on the equity compensation website with the ability to easily see who has responded or not.

Effective Communication of Employee Equity Plans Summary:

• Purpose: Understand and administer the equity incentive plan to ensure it achieves its purpose
• Online Award Communication: On-line communication is most effective
• Reflect Company Culture: Consider and tie company culture into the equity incentive plan
• Award Value: Make it easy for employees to calculate and simulate the value of their awards
• Global Challenges: Localise information to make it easier for global participants to understand and appreciate their awards
• Training and Communications: Do not neglect training and communications – this can be your most effective tool for employee understanding and appreciation
• Surveys: Periodically survey employees and use the feedback to adjust the program, communications or training accordingly

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