Employee Equity In Lieu Of Salary

With no clear end in sight for the COVID-19 pandemic and the profound implications it has had on many businesses, the top priorities for companies now are employee retention and the management of short-term cash flow. It is essential for businesses to consider alternative ways to retain their staff as they continue to struggle with paying full wages to their employees and the JobKeeper payment ending 28 March 2021 (more details can be found on ATO’s JobKeeper extension announcement).

Offered as an incentive and allowing employees to share the growth and success of the business, Employee Share Schemes are a versatile and valuable way to attract, retain and motivate employees. Additionally, utilising employee equity can be a great strategy to help improve a business’s cash flow.

There are many benefits to offering employee equity, including:

• Aligning the interests of employees with the interests of the company;
• Attracting and retaining employees without high costs, encouraging employees to stay with the company for a significant amount of time due to vesting;
• Improving company cash flow; and
• Tax benefits for both employees and the company.

As the issues of the COVID-19 pandemic are felt across the economy, many companies are considering to utilise Employee Equity Plans in lieu of salary payments, allowing employee retention and an immediate reduction of the financial impact on their business.

3 tips to consider when introducing employee equity in lieu of salary payments:

1. Issue the same amount of equity as the employee has forfeited in salary payments;
2. Ensure the vesting date aligns with the date the employee’s salary reverts back to their normal pay; and
3. A clear communication plan is essential when rolling out a new plan to employees.

With over 400 Employee Equity Plans under management, BoardRoom has extensive experience in designing, implementing, and managing Employee Equity Plans. If you would like to find out how BoardRoom can help, please do not hesitate to contact us.

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