Private companies nationwide are facing a new pain point in the labor force: “quiet quitting.” Employees are doing the bare minimum while looking for new jobs and focusing their time and effort on life outside of work. Signs of “quiet quitting” include chronic employee disengagement, employees failing to meet or exceed performance standards, and team members rarely speaking up or taking initiative.
As any entrepreneur or business leader knows, increased employee engagement means a more effective and productive business, leading to better business outcomes and returns for shareholders. As a company grows, shareholders see their paper wealth accumulate. However, employees with stock options or private company shares typically can’t access that wealth, and may not even have the means to exercise their stock options and become company shareholders; this can be particularly true of younger employees who often have more limited financial resources. More often than not, employees with options or shares at private companies must wait until a company exit event, such as an IPO, in order to cash in on their hard-earned equity. As a result, the ability of employees to pursue their personal and financial goals can be entirely dependent on the company’s ability and timeline to exit.
The promise of eventually cashing out on equity ownership has become a common employee retention method. You may have even heard of the term “golden handcuffs.” This refers to compensation or benefits provided by employers, which cannot be fully accessed by an employee, unless they remain at the company over a period of time. Private company equity grants, in which employees vest over a number of years are a common form of “golden handcuffs” and used as a retention strategy to keep employees at a company longer.
Another term often heard in Silicon Valley is “resting and vesting” – in a similar capacity to “quiet quitting,” employees will stay at a company and do the bare minimum (“rest”) while they wait out the vesting schedule for their stock options, not wanting to leave the equity they’ve earned on the table. As trends like “quiet quitting” and “resting and vesting” emerge, who is really benefiting from the golden handcuffs strategy, which keeps disengaged employees at jobs where they’re no longer invested in personal growth and company success? Certainly not employees who are tied to a job where they’re not finding value, nor are the companies benefiting, as they may experience a decline in productivity and growth as a result. Employees are a company’s greatest asset. It’s vital to craft retention strategies that can improve employee engagement – which is only achievable when employees want to stay.
So, how can companies avoid quiet quitting and increase employee engagement? One option is to implement employee liquidity and option-exercise programs. Option-exercise programs make it possible for employees to afford to exercise stock options early – allowing them to tax-optimize and become company shareholders, aligning their interests with those of the company. Liquidity programs allow employees to access the value of their equity grants without waiting years for an exit event, and without giving up their stake in the company. Company support for these programs not only saves employees the trouble of looking for solutions themselves in uncertain times, but can help boost employee morale, increase employee engagement and retention, and help attract top talent. Liquidity and option-exercise programs can also help improve the perception of a brand, highlighting the company as one that cares about the personal and financial success of its employees.
Employee-owned companies have proven success rates for driving business growth. A Harvard Business Review study found that companies with employee stock ownership plans (ESOPs) saw employment growth at least 5% greater over a five-year period than their competitors without an ESOP in place, and also saw 5.4% faster sales growth. The study also found that 73% of the ESOP companies in their sample “significantly improved their performance after they set up their plans.”
At Liquid Stock, our team structures innovative programs and solutions with select high-growth private companies and equity-holders. We allow private companies to offer an alternative approach to liquidity for employees, tailored to their specific situations and needs. These solutions provide potential tax benefits. Therefore, they do not elicit “price discovery,” which can be particularly beneficial in these uncertain times.
Learn more about how Liquid Stock solutions can help increase employee engagement, strengthen equity benefits, and empower employees to enjoy the value of their company equity.
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