How our employee shadow options scheme works
Recently at Walr we launched our employee shadow options scheme. This is a form of compensation that confers the benefits of having company stock without the actual ownership or transfer of any shares. The plan is being offered to all employees, allowing them to participate in the future success of the company.
Walr makes software for data researchers, giving them a single platform to host and display their findings. Our company is high tech, so we need to treat our employees well. As an accredited Great Place to Work (a certification body for workplace culture) we are committed to building a delightful working environment. The shadow options scheme is part of our wider goal to maintain and improve employee satisfaction.
As we are in a rapid phase of growth, it is important we invest our cash wisely to ensure we remain on this current trajectory. Therefore, we wanted a scheme that would reward our employees for their hard work and give them a real sense of ownership in the business’ success, not just for now but in the long term.
As a global, remote-first business, the scheme had to be available to everybody, regardless of position, seniority or location. We wanted it to be simple and straightforward, and to not be complicated by tax jurisdictions – the last thing we wanted was to burden our employees with unnecessary tax returns!
How it works
All staff will be given a number of “shadow options” based on the value of the company at the time of issue. If there is an exit event (the sale or change in control of a start-up, signalling the 'exiting' of ownership), the employees will receive a bonus determined by the number of shadow options held and the value of the company at the time of an exit.
The company will be independently valued by our accountants Deloitte and Hillier Hopkins and will be based on a combination of turnover, earnings and balance sheet assets at the time of new issue.
At an exit event, a price will be set for each share in the company. The employee will receive that price times the number of share options, paid to them as a bonus payment through payroll.
Additionally, employees are given the option to take future bonuses as cash or an equivalent value in shadow options based on the value of the company at that time. This brings personalised benefits, allowing those individuals who would prefer the bonus immediately to collect accordingly, and others who wish to be further invested in the journey of the company to be rewarded further down the line.
Each shadow option is exercisable for free on an exit; therefore, employees will receive the whole value of the shares at that time. There is no downside risk on the initial tranche of shadow options as they have been issued for free. If in the future, employees give up a bonus payment in exchange for shadow options, those will be priced at the value of the company at the time of issue. If a future exit event occurs at a lower price, then they will potentially lose that difference. However, that is unlikely with our current trajectory and is a risk with all 'shares' investments.
Any gains the employee makes from their involvement in the scheme act like a bonus payment and are taxed as income. This makes the scheme relatively easy to administer and should place minimal, if any, tax complications on the employee. Additionally, the scheme does not need regulatory approval from local tax authorities which helps reduce the cost and time burden on the company. It is, however, still worth getting legal and tax accounting advice when setting up the scheme for your business.
The whole set-up is relatively inexpensive. Meeten Nathwani at our accountants Hillier Hopkins gave us the initial concept, Andrew Tzialli at the corporate law-firm Philip Lee helped us put together the legals.
The impact on staff
So far, the scheme has had a great reception. People feel they are part of the success of the company, and the shadow options provide extra motivation.
Raju Chakraborty, Walr Data Manager, fed back: “I think, this is a great and innovative idea. Now, employees can actually think of themselves as a part of the business’ growth. This is a big morale boost for employees; eventually, this high morale will help the company grow faster with high retention. Looking at the current growth of our business, I can say once an exit event occurs, employees will get a good monetary benefit from it. With this shadow option, we indeed feel empowered to act like owners.”
When it comes to setting up a shadow options scheme for your employees, ensure you truly understand what it is you’re offering. Seek out legal and accounting advice, and remember that the scheme is a way to reward and empower your employees.
At Walr, we share in our success. This is absolutely fundamental to who we are as an organisation. Shadow options mean that if the company grows, the value of the employee options grow, and this allows us to truly celebrate as a team.