Written by Salary.com Staff
May 19, 2024
To understand equity compensation, take a look first at what equity means. Equity is the share or stock in a company that employees receive as part of their pay. Instead of just earning a salary, employees receive ownership of the company. This means as the company grows in value, so does the equity. For startup companies, equity compensation is often a large part of an employee’s total pay.
The main types of equity compensation are stock options and restricted stock units (RSUs).
Why Companies Offer Equity Compensation
Equity compensation benefits both companies and employees. For companies, it helps attract and keep employees by giving them a stake in the company’s success. It motivates employees to meet company goals, as their equity value rises with success. Equity compensation lets employees share in the company's growth. As the company prospers, equity becomes a huge part of an employee's pay and overall worth.
Equity compensation seems complex, but it benefits both companies and employees when done right. With the right tools and education, equity programs make employees co-owners of their company's future.
When done right, equity compensation can provide great advantage for employees and the company. But manual equity management is more complex than you may think.
Tedious and Prone to Errors
Updating spreadsheets and paper records needs careful data entry and checking to avoid errors. Human mistakes can happen easily with lots of data to manage. When companies store records in spreadsheets, documents, and files, there's no way to guarantee consistent data entry and formatting. This can result in various issues. Varying date or name formats can cause problems with data accuracy. Plus, managers need to spend extra time managing equity compensation instead of focusing on more important tasks.
Challenging to Update Regularly
As companies grow, the volume of equity data rapidly increases. Manual processes quickly become unscalable, making it almost impossible to keep records up to date in a timely manner.
Outdated data loses its value and relevance for strategic planning and compliance. Keeping equity records updated takes a lot of time when done by hand. Equity data stored on different computers or in file cabinets can be tricky to find when needed for reports or decisions. Employees spend time searching through files or spreadsheets, which is a waste.
Equity management software provides solutions to all these challenges. For companies serious about equity compensation planning and compliance, software is crucial. An automated system allows equity programs to grow seamlessly with the business.
Equity management software helps companies simplify the process of managing employee equity plans. Automating administrative tasks lightens the load for HR and finance teams. Equity management software simplifies tasks in various ways.
Automated Cap Table Management
Equity management software automatically updates the capitalization table when there are changes. It easily updates the table when there are new hires, terminations, equity grants, or exercises. This eliminates the need for manual spreadsheet updates and ensures accuracy. The software integrates with payroll and HR systems to automatically capture employee information.
Simplified Equity Grant Management
The software manages the whole equity grant process—from creating agreements to tracking acceptance and vesting. With software, employees can accept grants online. The system will then alert them before vesting, allowing them to decide whether to exercise or not. Through this, administration becomes simplified for the company, and employees get a better experience.
Interactive Reporting and Insights
Equity software shows companies live updates on all equity plans. It can generate reports on equity grants, vesting schedules, option exercises, and more. The data and insights provided help guide strategic decisions around equity compensation. Management and boards have a clear view of the potential dilution and cost impact of equity plans.
Reduced Risk of Errors
Equity software automates tricky calculations, lowering the chance of errors and costly fixes. It handles calculations such as option expirations and accurate vesting, following plan terms. Approvals are simpler with automated sign-off workflows.
Using software to handle employee equity plans makes things smoother, clearer, and more accurate. It helps companies follow rules and keep things right while making them better for employees. With quick data and insights, software helps companies make the most of equity pay plans.
More and more companies are now offering HR tech to simplify tasks. But before getting software to manage equity, companies need to know what they need.
Here are some key features to look for before getting equity management software:
User-Friendly Interface
Interface is the first thing employees will notice in every new HR tech. Employees will only use an equity management solution when it's easy to use. Find one with a simple design that allows easy navigation and works on both computers and phones because people want to access info from anywhere.
Educational Resources
Not all employees will initially understand the concept of equity plans. Soon, they will have questions and concerns about how it works.
Equity management tools must offer resources to help employees understand their equity. This means things such as videos, guides, FAQs, and calculators. These will help employees grasp how their equity works and its value. Through this, they can decide better whether to use options or sell shares.
Automated Notifications
Employees can't track their equity from time to time. Equity software must have features that alert employees in advance about important dates, reminding them of option expirations or end-of-blackout periods. These alerts help prevent employees from missing chances or facing penalties because they didn't know.
Detailed Reporting
Comprehensive reporting is essential for both employees and administrators. Employees' reports must show their equity details, values, vesting schedules, and transaction status. Admins need solid reports for compliance, cap table management, participation rates, and more. Customizable reports help businesses see how to make their equity plans better.
Secure Data Storage
Any tool accessing sensitive financial and tax information needs tight security. Check for features such as two-factor authentication, role-based access, and data encryption. Regular checks help keep employees' details and equity info safe and private.
Equity software simplifies employee compensation and boosts transparency. Choosing the right tool empowers employees to benefit the most from their equity.
Equity management software can change how companies handle stock options and equity grants. These software solutions simplify tasks, replacing complex spreadsheets. Employees track equity through easy dashboards. Companies save time and reduce errors with automation. With the right tools, companies streamline stock plans and win talent battles.
Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.