Finding unique ways to compensate employees is a very important responsibility that all business owners and managers have. While there are potential risks, a good compensation option is to give company stock to those that are looking to invest. If you are considering giving company stock to employees, or investing employee money in stock, there are a variety of factors that you need to take into consideration. Before making the decision, consider these options.
Warn of Risks
If you are thinking of investing employee money in the stock of your company, one of the most important things you need to do is make sure you make all employees aware of all of the risks that come with investing in stock. While your company could be very strong, there is always a risk that you will struggle in the future. When you are investing in an individual stock, this could mean that the price of the stock could eventually go down considerably. Because of this, you need to make sure you have a full compliance and training program that all employees need to go through before investing.
While it may seem that it is a good benefit to simply allow a member of your organization to invest in the company, there really is no benefit if you do not offer them a discount. If your company is publicly traded, they will have the opportunity to go through a normal brokerage process to invest in your company. Because of this, you should think of a way to make it beneficial. One great option would be to provide them with a discount on any company stock that they purchase. Even a 10 to 20% discount could be a great incentive and provide a strong and immediate return on investment.
If you are offering you employees the ability to purchase stock at a discount, you will also want to make sure that you are including some form of hold period before you allow them to sell the stock. In general, you should require that the employee holds on to the stock for at least 30 to 90 days before they sell. This will prevent people from trying to sell right away to skim off of the profit provided by the purchase price discount. This will also help to improve alignment between employees and the ownership of the company.
While offering straight stock at a discount is a good benefit, a better long-term benefit could be to offer stock options. When you have stock options, the value of the options will go up considerably if the company and stock does well. With an options animal trading system that provides good options structure, employees will be far more incentivized to stay at the company for longer in order to see the value of the stock increase. This could make stock options a better long-term benefit for all parties involved in the transaction.
Consider Tax Consequences
Whenever you are offering nay form of stock program to your employees, it is also very important that you consider the tax consequences of the purchase and sale. If you simply give someone stock at a discount, this could be considered taxable income. Because of this, it might be wise to structure it in another matter. One great option would be to fund the stock purchases through a retirement vehicle. This could help to prevent a taxable situation from occurring until the employee is retired and withdrawing from their fund. Ultimately, this will also help them to achieve their long-term investment goals.
Most importantly, when you are looking to set up an employee investment program, you need to make sure that it is fair and balanced. The last thing that you want to do is have an investment program that only includes certain employees. There needs to be a clear system established, which will allow you to determine who qualifies for stock purchase. By: Dennis Hung