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CEO Corner

5 Equity Trends to Watch in 2022

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The market for employment is changing at warp-speed, and organizations are having to do more for their employees to attract and retain talent. We are now looking at a global workforce who want a diverse and dynamic total compensation package that involves more than a competitive base salary.

So, as we kick off the new year in style, join us as we uncover five of the hottest trends in equity, alongside our predictions for the year ahead.

1. Increased liquidity events

We have already seen a hot IPO market in 2021, but what about companies who want to stay private? Private companies and their workers quickly recognize that they don’t have a market for workers to realize the value of their shares. Ultimately, shares are great on paper – but that’s all they are until the company ultimately reaches an IPO. Instead, we’re already seeing a shift towards tender offers, where private companies create opportunities for their employees to sell shares back to the company during a fixed period of time. This creates an internal market for the shares, and allows employees to realize the value of their rewards without  a change of control or an IPO.

Bonus for the company? By buying back shares, the organization gets greater control over their own share ownership.

2. More cryptocurrency rewards

According to Deloitte, “Crypto is an investable asset, and some, such as bitcoin, have performed exceedingly well over the past five years.” If you can properly assess the volatility risks, it’s possible that cryptocurrency could emerge as a smart option for offering token-based equity. After all, there is a significant benefit for the employee in taking the chance that the   tokens increase in value, which makes a vesting period far more tolerable and incentivized to the employee.

Companies are already trialing opportunities for employees to be paid partially in cryptocurrency, like Sequoia Holdings, who have announced a program whereby employees can defer some of their paycheck to bitcoin, bitcoin cash or Ethereum. Additionally, they can be structured in the same long term incentive schemes as other equity to help retain your talent.

As an employer, this is a trend to watch, as equity in crypto doesn’t dilute the company’s capitalization, and could be a valuable head-turner to younger more financially and technologically savvy employees who want broader options for how they are rewarded for their work.

3. A shift from stock options to RSUs

For the average worker, the perceived benefit of a restricted stock unit award is much higher than that of stock options, fuelling a shift in the market where stock options are being phased out in favor of RSUs.

With an RSU, generally they will always have value throughout the lifetime of the award while stock options are far more volatile, and come with a risk of it being worth nothing by the time you want to or are able to cash out. In addition, if you are a private company growing in size and valuation, RSUs could be a good alternative if your share prices become prohibitively expensive for the average employee to purchase. As a global company, the administration and accounting can also be a lot more straightforward, creating less burden for the company overall.

As a result, the entire industry is moving towards RSUs as their award vehicle of choice, or granting stock options as a private company but as they move to go public – switching to RSUs. One example is Gitlab, who announced this year they are moving to RSUs instead of stock options going forward.

4. Equity plans that fit global requirements

As the world continues to work remotely, and as more companies look at a ‘work from anywhere’ model, you might find yourself in a country you are unfamiliar with which can have significant implications on your equity program. It’s important as a business to understand the different laws around the world and how this impacts you and your employees.

Looking at the different tax structure for example, in Canada your employees can reduce taxes by as much as 50%, while in Lithuania with a properly structured three-year vesting period you could help employees benefit from a tax exemption on those shares. There are a lot of ways to structure your equity to comply with local legal and tax obligations but you’ll need a partner with global knowledge.

5. Time to close yet another gender pay gap

When companies think about the gender pay gap, equity is one area that often gets forgotten, but it’s not just about ensuring a parity on the payslip each month. According to the Wall Street Journal, 24% of male employees have stock options, while the percentage drops to 17% when looking at female employees.

Whether it’s because women don’t think to ask for stock options as part of a rounded package, or because of stigma and inequality in the workplace – women won’t be putting up with being overlooked in this area much longer. It’s time to take a long hard look at how your equity is managed and apportioned across the business, and make sure that equity becomes truly equitable for 2022.

Looking for insight on global equity solutions for your enterprise business? Let’s schedule a time to talk.