Startups have traditionally used employee stock options to attract strong talent who could otherwise likely land a higher salary at a more-established company. But pitches that promise significant upside don’t always live up to their potential grandeur.
As 2021’s lofty valuations have come crashing back down to earth, many employees are slowly realizing that the stock options they have been banking on are essentially worthless. Those who have seen their company continue to grow aren’t always impressed by their outcomes either. So, is the potential upside a myth?
Not necessarily, according to Maria Dramalioti-Taylor, general partner at Beacon Capital; Tyson Hendricksen, founder and CEO of Notice; and Amir Ashkenazi, the founder and CEO at Switchboard. Speaking at a panel on staff retention and employee liquidity during TechCrunch Disrupt 2023, all three agreed that if done right, employee stock options demonstrate company alignment, and giving employees early access to that liquidity can motivate them to keep building if an exit is far off.
Still, stock option programs have to be done right.
Companies should be intentional about setting up a real program from the beginning, Hendricksen said, because it gives them more control over what happens later. “You can say, ‘Hey, here’s your equity, and every quarter, you can sell this much. This is the history of what we’ve been doing and here’s where it’s at.’ It’s also good price-discovery in a lot of cases; you can kind of figure out what the market’s telling you.”