The recent business developments around Pipedrive showed how rewarding share options can be. The company reached unicorn status, which became extremely rewarding for its longtime employees – who also happened to be the shareholders.
Imagine sharing the company’s success, as it grows bigger and its shares become more valuable.
Is this big payday just a fairytale? How do share options work? What is the main benefit of it?
Talking about unicorns, the most successful Lithuanian start-up Vinted gladly agreed to explain how the share options function in real life. They have rather good insights on the matter, as Vinted’s employees have the opportunity to enjoy this motivational benefit.
Let’s imagine that you have a new employee. How would you explain step-by-step how Vinted’s share options work? As simply put as possible.
Share options give employees an opportunity to buy company shares in the future for the pre-determined and heavily discounted price. This right (to purchase company shares) is earned gradually over the period an employee is working at Vinted.
Each option grant of our employees is reviewed on an annual basis and additional options are awarded for achieving certain milestones.
As the company grows and matures, we expect the worth of the company to increase as well. The idea is for employees to participate on the growth journey together. Hopefully, at the end, the share price will be considerably higher than the predetermined price. This will then allow our participants to buy low and sell high.
Company’s growth does not happen overnight – the share option is a long term investment. How much could the Vinted be worth at the moment and how has that changed over time?
You are right, the growth does not happen overnight. That is why many equity compensation plans are long-term, four years and longer, to give employees an incentive to stay in a company for many years.
However, the terms of the equity compensation plans might not be as important as company culture. In order to be able to grow the company, it is important to promote collaboration and ownership mentality.
When people with an ownership mindset come together to co-create and work, amazing results can be achieved. For example, last year Vinted became a unicorn with 1B EUR valuation, which was celebrated by all employees and investors.
In the future, we believe that our teams will grow the company value even more.
As we mentioned time, please explain what vesting means?
Vesting means that options become available to you over time, so you have to work in the company for a certain period in order to exercise earned options.
All option programs are designed with the future in mind – companies want to incentivize employees to stay longer and focus on long-term goals.
At Vinted standard vesting schedule is four years – 25% of share options are earned on the first anniversary of the grant date, and the remaining balance is earned monthly in three years.
Owning shares may come with plenty of financial benefits. Where is the catch?
With options, high risk comes with high reward. When the predetermined share price is higher than the market price, then your options are worthless.
Vinted has been around for 10 years and is now an established player in the industry. We are in a sweet spot where there is still a lot of room for growth but, we are no longer a start up, trying to prove our product.
How the share options are taxed?
Taxation varies across countries, however, the truth is that more and more countries try to broaden employee financial participation, therefore, different incentives are being introduced.
For example, the Parliament of Lithuania approved the changes regarding share option taxation this year. The new incentive states that income calculated at the option exercise moment (when shares are purchased for a discounted price) is a non-taxable income if the option is held for at least 3 years. The sale of shares is still a taxable transaction, which means that income received from selling the shares is subject to taxation.
One thing is attracting talent, but the other thing is keeping them. Do you see that the share-based compensation package pays off in the long term?
Equity compensation in many cases is expected to lower retention and grow employee loyalty.
At Vinted we have employees who celebrate their 9th working anniversaries, which might prove the point.
However, the truth is, that overall satisfaction of employees and their loyalty depends on other things as well – working environment, colleagues, and most importantly – company culture. We promote an ownership mentality which helps us to keep engagement and attract the right talent.
Share options are an extension of our culture and offer a generous way to reward our employees for their contributions to company growth.
Does it all come down to money or is there another angle of the benefit?
Financial benefit is only one side of share options. For example, Vinted introduced “options for all” to strengthen our culture and show our employees that we treat them as co-owners of the business.
We believe that our teams feel responsible for the company’s success and our collective mission to make second-hand fashion first choice worldwide. Eventually, their effort will be rewarded by having an opportunity to become shareholders and selling shares to benefit financially.
Join the Vinted team and browse their job openings in MeetFrank recruitment app:
- Security Awareness Process Engineer
- Marketing Data Scientist
- iOS Software Engineer
- browse for many more vacancies in the app.