When cash stops working. The real triggers for an employee equity plan

Most employee equity plans don't start with ideology. They start with pressure.

Sometimes the pressure is commercial: pay inflation, scarce skills and the growing realisation that cash is buying time rather than loyalty.

Sometimes it's cultural: a founder wants to share the upside while it's still straightforward, before a valuation gear change turns “sharing” into a negotiation and before the business becomes too complex to make ownership feel real.

Either way, equity only works when it's anchored to something credible: governance people trust, a value-creation strategy that people believe in and a route for your staff to realise that value (even if partial and imperfect). Without that, equity becomes wishful thinking with paperwork, which is a fragile incentive (although potentially a serendipitous one). 

If you are weighing up a plan right now, the useful question isn't “should we give employees equity?” It's: what's stopping you, what are the push factors and do you have the operating model to run the structure well?

Before you launch an employee equity plan, be ready for three adult conversations:

• Value: what's the number and what evidence sits behind it?
• Dilution: who pays for the incentive pool - today and in the future?
• Liquidity: how (and when) does this become real money?

What holds you back?

The business case isn't quite ready

Equity is a tool, not a dumb reach strategy. If the “why” is just “alignment” or “retention”, you risk building a plan that is technically neat but commercially vague. The better framing is: which roles, over what time horizon and what behaviour are you trying to influence that cash isn’t influencing today?

You don't trust the valuation conversation

A share plan forces you to put a number on the business and stand behind it. If there’s no credible route to liquidity - sale, IPO, internal buy-back, periodic tender windows - equity can feel like a promise without a timetable. That’s when communications become fragile and cynicism grows. 

You already feel the admin dread

Even a “simple” plan has operational drag: joiners, leavers, movers, approvals, reporting, payroll coordination, withholding and the potential annual cycle of grant/vest/settle. If you don’t have a workable operating model, the plan becomes a permanent internal project rather than a reward mechanism.

You worry about expectation management

People hear “equity” and mentally bank a future payout. If you can’t explain the downside case - flat valuations, delayed exits, tax arising at awkward moments - then the upside story will eventually backfire.

Dilution is not a footnote. It's the price

A 10% incentive pool is not a slogan; it’s an economic transfer that becomes painfully visible at the next funding round, refinance or exit waterfall. Every refresh grant is a decision about who bears the cost - existing shareholders, future investors or employees through a smaller pool later. If you can’t have that conversation up front (pool size, refresh strategy, treatment on funding, what happens when the cap table changes), you are building an incentive plan that will feel “unfair” at exactly the wrong moment. 

More thoughts here.

What makes you press the trigger?

Cash is no longer doing the job

When bonuses become a treadmill - paid out, forgotten and implicitly expected again next year - equity starts to look like a reward lever that can create longer-term focus without permanently ratcheting fixed costs.

You start hiring in a different weight class

Once you are recruiting leaders and scarce skills from businesses where equity is normal - PE-backed, listed, high-growth etc., - cash alone stops being credible. Not because people are entitled, but because they’re doing risk maths and comparing packages properly. If your Head of Sales can move to a competitor and pick up meaningful upside, matching their base and bonus rarely solves the problem. 

I have written here about the “quit-cost”.

You have a credible value-creation plan and timeline

Equity works really well when it can attach to something real: a three-year execution horizon, measurable milestones and a believable route to value realisation (even partial). 

Retention becomes execution risk, not an HR metric

When attrition hits critical roles, the board’s mindset tends to shift. The question becomes: “What will it cost us not to retain this capability for the next 24-36 months?” That’s typically when long-term incentives move from “nice to have” to “risk management”.

The founder genuinely wants to share the upside (before success makes it awkward)

This is an under-rated trigger. Often, founders don’t launch employee equity plans because the cap table demands it; they do it because it feels like the right thing to do. They know future success will be a team outcome, and they want to lock in a fair deal now, while the business still feels close-knit and before a big valuation step-up turns “sharing” into a difficult, political conversation. Done well, that intent becomes a cultural asset: a credible signal that ownership is real, not a slogan.

What good looks like in practice

Two concluding thoughts. As much as advisers (like me) love to extoll the benefits of an incentive plan, most participants judge the merits of said plan in binary fashion: a good plan is one that pays out, a bad plan is one that doesn't. Done. Enough said (at least in their eyes). 

Moreover, advisers (like me) naturally enjoy a plan's technical intricacies because, after all, that is what we are paid to enjoy (or at least forbear). But, a good equity plan doesn't have to be the most intricate plan - it’s the one that is easy to explain, easy to run and hard to criticise.

A good plan has:

• a clear purpose and a defined population (not “everyone get something because ‘fairness’”);
• simple mechanics with disciplined governance (who decides, what discretion exists and why);
• honest communications, including the downside case;
• a dilution strategy so the business can operate without surprise or embarrassment; and
• an operating model that scales and adapts.