In today’s competitive business landscape, retaining and recruiting top talent is more important than ever. However, many companies face challenges when it comes to managing compensation and don’t know how to use equity, especially when cash is tight. Below, we’ll explore how companies can leverage equity as a powerful tool for attracting and retaining top talent, and how Sequoia Comp OS™ can help streamline the process. 

The Equity Advantage 

While cash may be king in some situations, equity is an important aspect for VC-backed companies to offer competitive total comp package. Especially in today’s macroeconomic environment where the timing and ability to raise additional capital may be in question, effectively managing equity burn rate and overhang is critical. However, many companies don’t know how to use equity appropriately. Equity is not cash, so it’s crucial to treat it differently and use it strategically to focus on retaining and recruiting top talent and key initiatives. By favoring equity over cash, companies can change recruiting conversations and provide a clear talk track on the company’s mission and potential. 

Using equity creatively can solve various business needs and provide a rewarding environment for talent.  

Examples for how to use equity:  

  • Equity can be used as an alternative to cash for bonus payments, with different approaches for public and private companies depending on their stage.  
  • Equity refreshes are another key use of equity, which can be given to employees who are highly vested, promoted, trail market equity levels, or need additional equity due to tight cash situations. 
  • Following a layoff or reduction in force, a company may benefit from recycling a portion of the equity returned to the share pool into retention grants for high performers and key talent. 

Communicating Equity is Key 

To maximize the value of equity-based compensation, effective communication is essential. Employees need to understand and appreciate the value of their equity, and total reward statements can help them do that. Accessible through the Sequoia Comp OS™, these statements provide a comprehensive view of an employee’s overall rewards package, including equity and stock value. Companies will want to consider how to appropriately message any off-cycle awards, so they don’t set an unsustainable precedent.  

A Long-Term Equity Strategy  

Equity-based compensation requires careful consideration and planning to avoid unintended consequences. Companies should understand their available equity, future share returns, and board expectations before implementing such programs. Additionally, it’s crucial to maintain legal boundaries and avoid unnecessary design features that may complicate the process. 

How Sequoia Can Help 

Equity can be a powerful tool for VC-backed companies looking to retain and recruit top talent when cash is tight. Knowing how to use equity creatively and strategically can solve business needs and provide a rewarding environment for employees. Sequoia Comp OS ™ offers a comprehensive solution to help businesses navigate the challenges of equity-based compensation, ensuring long-term success in today’s competitive market. If you are a current Sequoia client, you can access a free trial of Comp OS ™ now until May 31, 2024. Learn how to activate your free trial now.  

Andrew Lepine — Andrew has over 9 years of experience advising companies across the technology, life sciences, and other innovative industries on compensation and rewards. Since joining Sequoia at the beginning of 2022, he has focused on assisting companies in developing more holistic compensation programs through a clear philosophy and approach to pay transparency.