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Are Employee Stock Options the Best Recruiting Tool?

Employee stock options are certainly an important recruiting tool, but are they the be-all and end-all recruiting tool that many companies perceive them to be? As it turns out, this depends on the type of candidate that the company is looking to attract, and the framework within which the employee stock options are being offered. To illustrate this point, let’s look at an example.

Right now, there is an interesting conversation going on in the world of software engineering. While startups of all sizes and stages struggle to attract a very limited number of high quality software engineers, government agencies such as the NSA seem to attract excellent applicants without effort. This is very confusing at first review. Why would any talented individual elect to work a highly demanding and lower paying government job, when they could work at a startup with a private chef and generous stock option package instead?

To answer this question, it is important to consider the different factors that contribute to job satisfaction.

We often make the mistake of assuming that all employees are motivated primarily by monetary rewards. Of course, there is a floor above which applicants will expect to be compensated in order to meet their financial needs. However, beyond this level, there is not a 1:1 correlation between the amount of additional compensation being offered (whether in the form of salary or stock options) and the amount of interested applicants.

The truth of the matter is, many highly talented individuals have undergone the work of becoming exceptional not just so they could make money, but in order to use their skills to make a difference in the world.

In fact, according to a survey conducted by the Society for Human Resource Management, “Opportunities to use skills/abilities” was the number one most important aspect of job satisfaction to employees. Coming in at number three was “Compensation/pay,” indicating that although employees highly value their compensation, it still falls below the premium they place on the ability to use their skills in a productive way.

This distinction should play an important role in a company’s strategy for recruiting top talent. Returning to our example of software engineers electing to work at the NSA over a plush startup job; could it be the case that these individuals perceive a greater sense of meaning and purpose in the work the NSA is calling them to do? If so, then companies can improve the results of their recruiting by offering more meaningful opportunities for employees to use apply their skills.

However, this does not mean that companies should abandon the use of compensation packages such as employee stock options. Indeed, many applicants will expect to see these as part of any job offer. The real takeaway is that rather than leading with the compensation offer, companies should invite applicants to participate in a purpose driven culture, offering the employee stock options as a supporting benefit.

Society of Human Resource Management Study

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