There's something sexy about giving or receiving "equity in the company". It just SOUNDS exciting! But I'm not a fan (at all) of giving away equity in your company, especially as compensation to your team. Here are 7 quick reasons I've not seen it work out well:
- Most people don't understand what it means or how it works.
- Most employees would rather have a little extra cash now than a small piece of equity that may pay them something extra someday down the road.
- Phantom equity sounds even cooler; but really means nothing to the recipient unless you sell the company, at which point they may not even work there anymore.
- Equity is complex and implementing it requires a great deal of time and consideration.
- Equity is finite. Every share you give away is one less share you own in your own company.
- You'll probably give away more than you originally intended if the company grows 10X.
- And the most compelling reason is that firing someone who owns equity in your company is more like a divorce. It is a painful mess.
Two ways that I like a lot more are a well-designed profit-sharing plan or paying key people "off the bottom" or from the profits of the company each month. I can show you how to do this simply, generously, in a way that is more exciting to the recipients and clean and simple should you ever decide to break up. Call me.
