London, 16 December 2020 – In a year that has seen the wealth gap widen to a chasm in the wake of Covid-19, attitudes are hardening among both workers and bosses around the need to share the fruits of business success more widely, according to a new study by equity management fintech, Capdesk.
The research, which surveyed employees, founders and CEOs at private equity-backed UK startups and scale-ups, found the strength of feeling is such that the vast majority of employees (80%) and business owners (78%) actually agree companies should be required by law to offer equity share schemes to their workforces.
Christian Gabriel, CEO and Co-Founder of Capdesk, says: “We know the employee equity drumbeat has been growing louder but we were still pleased to see the extent of enthusiasm uncovered in this research, in particular how closely aligned management is to its employees.”
“After an extremely challenging year, it is encouraging to see something positive emerge: a fundamental shift towards distributing business wealth with more of those responsible for creating it.”
The economically devastating impact of the past nine months did not spare the fast-growth sector, with a significant proportion of business leaders revealing they were forced to take tough decisions to survive:
However, as cashflow dried up a sizable number were able to leverage company equity to offset the austerity imposed on employees and even avoid the most drastic action.
42% of businesses offered equity share options to newly promoted employees in place of salary rises, while 32% used equity to save jobs by agreeing salary reductions in return for share options.
For their part, employees have displayed an understanding of the challenging economic situation with many open to receiving increased equity as compensation. Half (49%) say they would take shares in place of salary increases for promotion, while 41% would accept a pay cut if equity is offered instead.
“Leaders are not only recognising the power of unlocking equity to drive their business and get through an economic crisis, but also the positive impact these actions can have on wider society.” – Christian Gabriel
Despite the popular notion that an IPO is the ultimate goal for startup employees to cash out on their equity, a relatively small proportion (13%) actually see this as a realistic route to liquidity.
Much more likely in workers’ minds is:
And with an established trend of equity-backed businesses now staying private for longer, it is perhaps no surprise there appears a growing impatience among employees to realise their shareholdings sooner.
The research reveals over half (57%) would wait no longer than 4 years to cash out, with nearly a third (31%) unwilling to wait more than 2 years. On average, employee equity holders are willing to wait just 3.87 years to cash out.
Meanwhile, if given the option, nearly three quarters (74%) claim they would sell some or all of their shares tomorrow.
“This finding reinforces the case for industry collaboration in creating easily accessible secondaries markets, with the goal of enabling employees and business owners to achieve liquidity faster." – Christian Gabriel
The findings point to a rock solid business and employer branding case for companies that offer employee equity share schemes, and risks for those that don’t.
80% of workers polled said they would prefer to work for a business that offers an employee equity share scheme, while 79% would be more committed to, and work harder for, a company that does.
On the flip side, workers believe a company not offering equity sends a bad message to potential recruits. Employees responded that it indicated a company was:
Meanwhile, the most common reasons leaders who offer employee equity cite for doing so are: it motivates and incentivises (34%), it’s the fair and right thing to do (32%), it boosts business performance (30%) and it attracts and retains talent (30%).
Some other interesting rationales included – due to investor pressure (24%), to release liquidity to partially exit business (22%) or, simply, to not look bad (10%).
About the research
The research, conducted by Censuswide on behalf of Capdesk, consisted of opinion surveys completed by 200 founders/CEOs/business owners and 1,000 employees at private equity-backed startups and scale-ups across the UK in early December 2020.