I plan to bootstrap and keep my company private with no plans on selling. What's an alternative to equity based compensation that recruits, motivates and retains employees? Should we increase benefits?

Equity compensation serves a purpose as a Long-Term Incentive. Alternatives include long-term cash (including performance-based cash), higher base pay, some form of profit sharing (although perhaps not a formal "profit sharing plan") and synthetic equity.

Research shows that benefits generally have little impact on recruiting and motivation. They can be effective bolstering retention.

The first question I would ask is what do you believe equity compensation is intended to deliver? This will help define the hole you are trying to fill with one or more alternatives.

Also, remember that there are key benefits to equity that most other tools cannot provide. Among these are potential tax planning strategies for participants, and creating a low, fixed compensation expense for the company. There are, of course, downsides as well (like communication issues), which I would be happy to go in a different forum.

Short-term incentives may also serve your purpose, if they are structured well.

Lastly, I would ask why you DON'T want to use equity compensation. There are many legitimate reasons, but I find that many companies avoid this tool out of myths and misunderstanding.

Answered 7 years ago

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