Reward And Retain: Three Steps To Developing An Employee Stock Ownership Plan For Your Startup
Amidst the phenomenon that is "The Great Resignation," retaining and rewarding talent has never been more important.
Amidst the phenomenon that is "The Great Resignation," retaining and rewarding talent has never been more important. In 2021, over 38 million people quit their jobs globally. To put that into perspective, that is equal to 70% of the GCC's population.
There are many reasons that have contributed to this, including compensation packages and access to flexible working. As a business in the intelligent delivery management space, the last two years have been a period of rapid growth for us at FarEye. Luckily, since our foundation in 2013, we have endeavored to develop a culture of innovation, trust, ownership, and commitment.
We view our people as entrepreneurs and intrapreneurs who have helped us build a successful business, and we wanted to ensure we had something in place to recognize their contributions. This can be done in various ways, from bonuses through to a profit-sharing plan. For us, an employee stock ownership plan (ESOP) was the perfect solution to allow our team to reap the rewards, as we continue to grow from strength to strength.
We revised our ESOP program last year to make it more employee friendly, and democratize ESOP grants to a significant section of our 700+ employees globally. We introduced an ESOP buyback program that allows eligible employees to liquidate a fixed proportion of their vested ESOPs. This year, the combined value of this was US$1.22 million. There has been no distinction made between present and past employees, as we look to acknowledge the contribution of all members of the FarEye family in our journey.
So, how do you go about putting an ESOP in place? Here are a few steps to get you started.
1/ Identify whether an ESOP is right for your business
Before embarking on the ESOP journey, you need to ensure that other existing business owners are willing to sell. You will also need to consider if you are comfortable with those who participate in the program to become beneficiaries of a plan that holds stock in their names, giving them voting rights within the business. If so, read on to the next step.
2/ Conduct a feasibility study and valuation
The feasibility study can be done inhouse or by an external consultant. What you need to assess is how much extra cash flow the company has to devote to the program, whether the company has adequate payroll for ESOP participants to make the contributions deductible, and, finally, estimate what the repurchase obligation will be, and how this will be handled by the company. Once this is complete, you will need to conduct a company valuation through an independent valuation expert.
3/ Establish a trust to buy your stock
This trust will own the stock and allocate the shares to the individual employee's accounts. The shares allocated can either be based on the employees pay, seniority, or a more equal formula. Those on the ESOP program can get the stock after they leave the company, or through a buyback program, which allows eligible employees to liquidate a fixed proportion of their vested ESOPs.
This is the premise that our revised ESOP was set on in 2021. FarEye started out as an idea –a dream– of democratizing awesome deliveries for businesses globally. Less than a decade in, we have over 150 clients and a 700+ strong team, empowering billions of shipments to homes across the globe. The truth is that our success would not have been possible without the relentless efforts and never-ending passion our people bring to work every day. As an SME, rewarding the efforts of employees who share your dream and turning it into their passion should be a priority. Once you get this right, you're on the right track to building a long-lasting, positive culture that will attract and retain the best talent and take your business to new heights.