Sharing Equity in Your Consulting Firm

Every week at Equiteq, we field calls from owners of professional services and consulting firms looking for guidance on sharing equity in their business.

It’s a hot enough topic that I delivered a webinar on it last week, and I wanted to share that content with you along with a quick overview.

Why does anybody consider giving out equity in the first place?

Primarily because owners and shareholders want to get the right people aligned with company objectives to make the boat go faster.

They want (and need) key people to step up, take on more responsibility and actually think and act like owners to grow the business.

To give these ambitions any teeth, they’ll need to provide these folks with an incentive to take on lofty expectations.  And, what better incentive is there than giving equity in the company?

Attracting and retaining key talent is another big driver.

There simply isn’t enough top talent available, and equity incentive plans are a great tool for enticing the very best of a limited pool.

Equity isn’t the only incentive tool, but it is the most potent

And, with potency comes risk.  Getting it wrong means you could end up giving away income that rightfully belongs to the shareholders.

You could end up alienating the very employees you wanted to keep. Any incentive plan can’t be successful without a basic appreciation of the organizational and “people” effects.

So, before you give away a nickel of your equity, you need to hammer out a plan for your incentive scheme.  And, that plan needs to include, at minimum:

  • Your clearly articulated purpose for sharing equity
  • An established criteria for deciding who is eligible and why
  • A defined set of performance measures used to tie any awards to
  • Some kind of feedback mechanism to ensure we know the plan is (or isn’t) working

Getting clear on your “why” is really important.

Are you simply looking to reward people for a job well done?  Are you trying to move away from working “in the business” to working “on the business”? Do you have a Big Hairy Audacious Goal?

This is the foundation to pressure test your equity scheme.

Webinar and Resources

As promised, you can view the recorded webinar session on GoToMeeting here.  The deck has been uploaded to SlideShare here.

I’d recommend listening to the recording first.  In the webinar, I  covered a lot of ground on the topic of sharing equity with key employees to increase value, including:

  • Where to start with planning an equity share program
  • How to identify key employees to participate
  • Using phantom stock to motivate without giving ownership
  • The impact of transaction retention programs

Pair this with an the excellent article that Alex White wrote for us, Why equity incentivizing your senior team can improve equity value.