As we are nearing the holiday season, it is time to consider some of the ways you can give meaningful, impactful gifts to your employees. You may be thinking that gift cards to coffee shops or baskets of chocolates are standard and sufficient gifts for your key employees. But, there are gifts that will empower your key employees with ownership and impact in your company, and will actually return plenty of benefit right back into your business. Ownership gives our employees both the appreciation and motivation that they and your business needs going into 2018. Here are some ideas for giving the gift of ownership this year:
- Stock Options. Stock options are contracts between the employer and the employee in which the employer grants employees the right to purchase stock in the company at a predetermined price during a set time period in the future (i.e. “exercise”). This method provides an incentive for employees to work hard because stock options allow them to benefit from the increase in value of the company. In addition, this method provides some liquidity to the company upon exercise.
- Restricted Stock Awards. A Restricted Stock Award is a grant of stock in the company in which the employee’s rights in the stock are restricted until the shares vest. Vesting periods can be met by the passage of time, or upon a specific occurrence of a predetermined event often based upon either company or individual performance. If the employee does not meet the conditions the company set forth prior to the end of the vesting period, the shares can be forfeited. This method provides further incentive to employees as well as improving retention of those employees if their shares have the potential to be forfeited.
- Stock Appreciation Rights (SAR). This is a contractual right, granted to an employee, to receive a bonus equal to the appreciation in the company’s stock over a specified period. Like employee stock options, SARs benefit the holder with an increase in stock price; the difference is that the employee is not required to pay the exercise price (as is the case for an employee stock option), but rather just receives the amount of the increase in cash or stock.
- Equity Bonuses. These are performance bonuses paid in the form of equity instead of cash. This method provides an incentive to employees to meet performance goals while minimizing cash outlays by the company.
- Phantom Stock Units. Phantom stock is a promise from the employer to pay a bonus to the employee equivalent to either the value of company shares or the increase in that value over a period of time, upon the occurrence of a predetermined event (i.e. every five years, upon retirement, with change of ownership). There are several different equity or allocation formulas that can be used. The taxation of the bonus would be much like any other cash bonus–it is taxed as ordinary income at the time it is received.
Give gifts this season that will influence your employees in a positive way, and in turn will maximize your business’ potential in the new year.