When it comes to allocating shares to employees, there are a few factors to consider:
- Company Stage: In the early stages of a company, it’s common to give a higher percentage of equity to employees in exchange for lower salaries. As the company grows, the amount of equity offered may decrease.
- Employee Role: The amount of equity offered can vary depending on the role and responsibilities of the employee. For example, key executives or top performers may receive a larger portion of equity compared to entry-level employees.
- Market Standards: It can be helpful to research market standards for equity compensation in your industry and geographic region to see what is typical.
- Company Goals: Consider your company’s goals and future plans. If you are planning to raise outside investment, for example, you may want to retain a larger percentage of ownership in the company.
- Budget Constraints: It’s important to allocate equity in a way that aligns with your company’s budget constraints and overall financial goals.
When deciding how much equity to allocate to employees, it’s important to create a transparent and fair system that aligns with your company’s goals and values. It’s also a good idea to consult with professionals to ensure you are making informed decisions that are in line with legal and financial requirements, and practitioners to understand the nuances and best practices to best obtain buy-in from stakeholders. At Cambridge Advisers, we provide multi-disciplinary assistance to meet your needs.