- The company gains employees’ goodwill, loyalty and commitment.
- Employees are motivated and encouraged to think like owners.
- Helps attract fresh talent on a regular basis
- Reduces attrition rate
- Can be used to finance growth through its tax-privileged status in a cost-effective manner.
- An Equity based Compensation can create cash-flow issues for a company. If a company borrows money to fund an Equity based Compensation, it will have to allocate significant future earnings towards repayment.
- Dilutes ownership
- Other hygiene factors are not in place – communication, transparency, objectivity
- Design flaws – vesting conditions, exercise process
Misconception: Very often, people fear that by establishing an Equity based Compensation, they will lose control over their company. It is not so. On the contrary, Equity based Compensation motivate employees to think like the owner of the company, wherein the control remains with the actual owners.