When many business owners hear “equity compensation,” they often think of high-growth tech startups or massive public corporations. But equity isn’t just for that world. For any private company, it can be one of the most powerful tools to attract, retain, and align key employees for the long term.
In simple terms, it is a non-cash payment that gives an employee an ownership stake in the business, either actual or financial. It moves beyond a simple salary by making your key people partners in the company’s future success. It is a strategic way to create an “ownership mindset” that pays dividends for years.
Why Should a Private Company Offer Equity?
While cash compensation covers day-to-day work, equity rewards long-term value creation. It solves three key challenges for growing businesses:
- Retention: This is the most common reason. Equity is the most effective tool for keeping your critical leaders and top performers invested in the company. By providing a reward that grows in value over several years, you give them a powerful reason to stay and build with you.
- Alignment: When key employees are owners, they start to think like owners. They become more focused on long-term value, profitability, and smart spending rather than just their annual bonus. Their interests become financially aligned with yours.
- Competitive Compensation: A private, growing company may not always be able to match the high base salaries offered by larger competitors. Equity helps level the playing field, offering a significant financial upside that can be far more valuable than a salary bump.
Common Types of Equity
Equity plans can be complex, but most fall into a few simple categories.
- Stock Options: These give an employee the right to buy company shares in the future at a price that is set today. The idea is that if the company grows, the shares will be worth more than the purchase price, allowing the employee to profit from the value they helped create.
- Restricted Stock: This is a direct grant of shares that the employee earns over time. They don’t have to buy them, but they must remain with the company for a set period to “vest” and take full ownership.
- Phantom Stock (or SARs): This is an excellent option for business owners who want the benefits of equity without actually giving away shares. It is essentially a cash bonus tied to the company’s value. Employees are granted “units” that track the value of the company stock, and they receive a cash payout based on the increase in value over time.
Where to Start?
Plans are not “one-size-fits-all.” A plan designed to reward a few key executives will look very different from one meant to motivate a broader group of managers. The most important step is to first define your business goals and then design a plan that directly supports them.
Equally important is communication. An equity grant is useless if your employees don’t understand its value or how it works. A successful rollout requires clear, simple communication that shows them what they have and what it could be worth.
Designing an equity plan is complex, but its value is immense. Let Sutton Business Velocity help you navigate this process. I guide private companies in designing and implementing plans that fit your specific goals, helping you retain top talent and create a true ownership mentality. Visit and start aligning your team for long-term success.