In our last article we outlined the main differences between the 2 financial components of your compensation package as a startup employee: salary vs. capital.

Today, prior to further explaining how equity incentives work, we’d like to give you an overview of the 4 basic pieces of knowledge to master when it comes to equity incentives.

1. The Share Capital of a Company

The capital of a company is essentially composed of people, individuals or companies, holding a stock or an option: the shareholders and stakeholders. The capital is the motherboard of a company as it is the basis of 2 strategic components:

• Economic value: this refers to the resources created by these stakeholders or its activity, reflecting the economic value of the corporation. …

Working in a startup obviously has its pros and cons. The most important components of your pay package as an employee are salary and equity. If you are working or want to work in a startup, you should understand both.

Some people are attracted by the startup life because they want to work in an innovative environment and/or because of the project itself and the mission of the company. In any case, they want to have a bigger impact than in a traditional company.

In Europe, especially in less mature ecosystems, the idea of working in a startup is also associated with common stereotypes like having a ping-pong table at the office, no dress code, no hierarchy… But such myths–even if they are not completely wrong–should be balanced with a practical understanding. To give you a brief overview: working in a startup is pretty risky, you need to be flexible, and you need to work super hard. The reward is that you’ll get some benefits that you won’t have in traditional companies. …

On December 2018, Juul put $2 billion of its recent $12.8 billion funding round raised from the tobacco giant Altria toward employee bonuses, according to a report from CNBC.

We assume that some of the 1,500 employees became millionaires. Pretty obvious with such amazing and improbable amount.

They didn’t have a shared lottery ticket, or at least not the kind you are thinking about.

Those instant-millionaires had two characteristics in common that made them rich:

• They worked at Juul.
• When they negotiated their contract, most of them knew what equity benefits are and they asked for it–which is pretty common in US. …

Drafting a good employee stock options plan (ESOP) is one of the best ways to recruit talent. This will empower employees by aligning their long-term interests with your vision and the company’s mission.

But drafting a good plan is not that easy. It involves knowledge of the law, taxation, finance, and human resources, and it’s rare to find someone who has expertise in all these subjects. While raising funds is heavily discussed in the startup world, employee equity is largely set aside. There are some likely reasons for that. …

As Nicolas Colin said in his newsletter “employee equity is critically important because startups are driven by increasing returns to scale. […] [But] because there are so few exits, stock options remain a very abstract concept for most people working in tech startups in Europe.”

Sharing company capital with employees requires indeed specific knowledge in human resources, law, tax and finance in order to get a clear understanding of how it works. It is an art rather than a science, and entrepreneurs thinking about their ESOP need to answer a lot of questions such as:

• How much equity should I give to whom? …

Interview with Florian Jourda first architect at Box.

“After years of hard work, I had the chance to monetize all the stock options the company granted to me and got enough to buy an apartment back in France. That was a great upside for all those years of commitment.”

Startup compensation has two pillars: salary and equity. Salary pays your day-to-day work, equity through an employee stock options plan (ESOP) can be a long-run game changer.

Plenty of articles explain the pros and cons of startup equity — here’s a great one from Mathias, a director at The Family. …

Almost all tech companies provide employee ownership through an employee stock option plan (ESOP) in order to align its stakeholders’ interests, including those of its employees. But only a few employees really understand what they get and so the desired effect of motivating people to maximize their involvement never really happens.

Why? As a founder, you know that making something REAL isn’t about administrative paperwork but about that moment of clarity when something becomes self-evident. An ESOP doesn’t mean anything for your employees so long as you don’t make them truly understand what it is.

I learned that through my experience at La Ruche qui dit Oui ! (LRQDO), a French tech company enabling a fair food system across Europe by helping groups of consumers to buy groceries directly from producers. When I joined the company following its series B round of funding, one of my first tasks was the implementation of the company’s ESOP for all employees, all across Europe. …