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Could an Equity Compensation Plan be run like a Retail Loyalty Card Rewards Program?

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At first glance an employee equity scheme and a retail brand’s consumer loyalty card might not seem like they have much in common, but when you look closely at what each aims to achieve certain elements of overlap emerge and lessons can be learned.

Ultimately the purpose of both is, through the promise of a future reward, to influence positive behavior. Consider how equity compensation strives to attract, reward and retain quality employees, which is not all that dissimilar from the goals of a retail loyalty card, except that is aimed at customers.

Loyalty (and engagement) is rewarded

Take a quick look in your wallet, purse, on your keyring or even through the apps on your phone and it’s obvious that loyalty cards have become a very common part of the shopping experience with arguably every industry, from grocery to airlines via your local coffee shop, burrito joint or book store having one.

Depending on where you are in the world the names may change but the concept remains consistent, whether it’s Starbucks, Kroger or Walgreens. Every time the customer completes a purchase or other trigger event they are rewarded with points. These accumulate and can be used to receive benefits with the main takeaway being that repeated engagement, i.e. loyalty, leads to better rewards.

Think then about how an equity plan operates in much the same way, but with the customer in this instance being the employee. The more they contribute to the company’s success by achieving targets or goals, the better their rewards. Equity compensation works by offering employees a stake in the company. This will normally be tied to some measurable goal or target being achieved or following a vesting period, e.g. where the employee must remain with the company for a certain tenure before they can take full ownership of the stock.

It’s important to note that employee equity plans are not just open to public companies. Private companies have the potential to offer stock rewards to their staff too.

Competitive and attractive

Picture two neighboring coffee shops with little to differentiate them except one offers a loyalty card and the other doesn’t. It is likely that people will consider the one that offers the reward as better value in the long term, e.g. a free coffee for every ten bought, thereby giving it an advantage in swaying the customer’s decision.

Similarly where a company offers an equity plan as part of their overall benefits program that could positively influence a person’s decision about whether they will accept a job there over another which doesn’t offer equity compensation. For many companies the ability to pay wages at the going market rate may not always be feasible, especially in competitive industries, against more established companies.

Having grown up at a time when it was common for start-up and pre-IPO companies, in the tech industry in particular, to offer their staff a share in the business as an incentive to remain loyal, millennials and other younger generations tend to view equity compensation and stock awards as very appealing, and is one way employers can impress and attract prospective talent. Employee equity also promotes staff retention since plans can have staggered tranches or maturity dates.

Furthermore as staff are now technically shareholders in the business they’ll be more aware that their performance is linked to, and can influence, the company’s overall performance.

Embedding and incentivizing

One possible choice for embedding rewards and incentives into equity compensation could be through adapting something many companies do already, where they offer incremental increases in annual leave for tenure, i.e. employees receiving additional annual leave the longer they stay. So why not do similar with your equity rewards, e.g. additional shares or the right to buy shares at reduced rates for milestones, career anniversaries, successful vesting periods, etc?

As with retail loyalty cards it’s well accepted that reward drives engagement, e.g. asking customers to fill in a survey and offering them free points or money off vouchers in return. This approach could be adapted and applied to getting employees signed-up for and engaged with their company’s share plan. The tasks and follow-ups around account activation, award acceptance and enrolment while essential can be quite time consuming for rewards and benefits teams. Encouraging and incentivizing employees with small perks, like a free coffee, meal in a company facility or even extra hours free time for completing these tasks themselves, could therefore be hugely beneficial.

Positive image

Rewards schemes, whether they are loyalty cards or equity awards, generate positivity. Just as customers will speak highly of a shop that offers good rewards, a well-executed equity plan can similarly create good feelings around your company.

People generally want to work someplace they will have positive experiences, which in turn means they are more likely to remain loyal, to take pride in their work and desire for the company to do well. Your employees could potentially be some of your biggest cheerleaders and brand ambassadors. Is it a good place to work? Are they treated well? Would they recommend their employer to friends and family?

Equity awards give employees the opportunity to become invested in the company and to potentially share in that success. Not only can it show them they’re appreciated, but it allows for a direct alignment of the interests of shareholders and staff, the result being increased employee engagement and organizational pride. When the company does well, they do well.

Boosting interest - getting people engaged

When a retailer offers a loyalty card they tend to use every opportunity to promote and make sure their customers are aware of it. Think about how each time you make a purchase you’re prompted to scan your card, while the mechanics of how points are collected and redeemed is generally made very clear.

Operating a share plan should be no different. If it’s not promoted then your employees won’t be excited by it, won’t understand it, won’t sign up and therefore it won’t do what it is meant to be doing.

Remember, one of the key drivers of success for any equity compensation plan is participation rates among employees. Seek out a plan provider who can offer enhancements or add-ons like a communications package or supporting materials.

What next?

Giving your staff an actual stake in the company encourages dedication, loyalty and provides motivation by granting them the potential to benefit financially.

Talk to us today to find out how an equity compensation plan might be the right fit for your company and employees.

Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.

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