How do I teach my employees about equity?

At Carta, we believe employees deserve equity and equity education. After all, holding equity in a company can generate incredible financial returns. Your employees need to know how equity works in a startup so they can make the best decisions for their personal and professional situations.

The importance of equity education

As companies stay private for longer, it’s important for employees to understand what it means to have equity in a company. Equity education can help increase job satisfaction, facilitate company growth, and improve workplace culture. 

On the flip side, a lack of equity education can contribute to inequalities in the workplace. When employees don’t have enough information about their equity, they may end up making hasty decisions, accepting unfair offers, or missing out on opportunities to grow their equity. Over time, employees might feel undervalued or dissatisfied, then choose to leave the company.

Providing equity education is a simple way to improve retention and create a more inclusive workplace. Building an equity curriculum forces you to review your company’s employment equity program and eliminate unfair practices. And when employees feel informed and empowered, they may be more inclined to exercise their stock, take a personal interest in the company’s success, and stick around to reap the benefits of their equity. 

Equity education at Carta

At Carta, we’re committed to providing ongoing equity education for all our employees. Here are the main ways we teach employees about equity:

In our offer letter

Education starts with our offer letter. We want all future Cartans to understand 1) how to value their job offer and 2) how to compare it to other job offers, especially those from public companies, where equity is usually more liquid and easier to understand.

Our offer letters include the following:

1. A clear breakdown of employee benefits

2. An explanation of what vesting means and how stock options vest at Carta

3. A compensation summary that lists the numbers employees need to value their equity offer, including the number of options granted, their strike price, the projected preferred price, and the projected grant notional value

During onboarding

We host a session dedicated to equity education during our two-day onboarding program, Launch. We make it fun by breaking the onboarding class into groups and playing Jeopardy, covering questions like, “Why are ISOs more favorable than NSOs?” and “How long is a 409A valuation valid for?” This doesn’t just help new Cartans understand their personal equity—it also gives them the information they need to do their jobs better, particularly if they’re in customer support, product, or marketing.

During Launch, we also give new employees a guide that includes equity terms, FAQs, and helpful questions to ask their lawyers, accountants, or financial advisors. We share the FAQ among our clients, too.

On our blog

We post articles, guides, and tools on our blog that shed light on complex equity topics, like how to sell private shares or what happens to your equity when you leave a company. Whenever we publish a new article, we share it on social media and in large public Slack channels—we don’t just want current and potential Cartans to have access to equity information; we also want to share resources with employees in every industry who want to learn more about equity. 

In our product

At Carta, we build equity education into our business model. One way is by including links to educational materials in our transactional emails. When employees get a new grant or vest options, we send them links to learn more so they can make informed decisions. 

We also highlight content in our app and on our site, so when our employees want to exercise their options they can understand what they’re getting into. 

How to craft your equity education program

Teaching your employees about equity is an investment in your company’s success. If you want to build an equity education program, here are four tips to keep in mind:

1. Be transparent 

Good equity education comes down to transparency. One of the best things you can do is commit to transparency in your offer letter. Break down the entire compensation package, including the salary, stock options, and benefits, as well as the system or formula you used to arrive at those numbers. Explaining why you offer the equity you do can help eliminate confusion, separate you from your competition, and foster trust with employees. 

Buffer, a company that creates social media engagement tools, has an open equity policy where they share their equity formula and how much they offer each employee. Their goal is to demystify equity for employees who may not understand what it means or how it works. 

It’s also a good idea to explain the benefits and potential drawbacks of the equity options you give employees. That’s what Gusto, a company that makes payroll and HR software, does. In an effort to treat their employees as rightful part owners, the company gives them the option to either exercise early so they can potentially take advantage of tax benefits, or exercise up to 10 years after leaving the company, giving them more time to evaluate whether exercising is a good idea and come up with the money if they decide it is. 

2. Develop an equity education training and resource guide

It’s a good idea to host educational sessions for new employees who need to learn the fundamentals of equity. 

In addition to answering employee questions and going over equity basics, budget enough time to discuss more complicated topics, like how equity is taxed. You may also want to create a list of resources for employees that includes equity terms, equity formulas, and tips for talking to an accountant or financial planner.  

Here are some links and resources you may want to include in your equity guide:

• Equity 101 blog series: This three-part series goes over startup stock options, strike prices, and how stock options are taxed. 

• Free startup equity calculator: Help employees make sense of their equity offers with this calculator.

• Employee resource center: Direct employees here for in-depth articles about stock options, exercising, taxes, and more. 

• AMT calculator: Help employees figure out their potential tax obligation when they exercise ISOs.  

3. Notify employees of important milestones

Teaching your employees about equity shouldn’t be a one-time event, but a continual process. You can help employees by reminding them of significant milestones, like when their first set of shares vests or how long they have to exercise shares after leaving. 

To mark the occasion, consider sending emails with additional information, inviting employees to one-on-one meetings to ask questions, or even celebrating with a balloon or small gift. Offering employees help and support at every stage of the equity journey can help them feel empowered and invested in the company’s growth.

4. Update employees on company changes and growth

Ongoing equity education also involves telling employees about company decisions that affect their equity. 

When a material event—like a new funding round or initial public offering (IPO)—occurs, the first step you should take is updating your cap table to reflect changes in equity. It’s also helpful to organize regular meetings to go over company metrics and allow employees to ask questions about their equity rights and options. 

When employees are in the loop on new investors, key hires, and company KPIs, they can make more informed decisions about what to do with their equity. 

Download Carta's Equity 101 deck

Get an expertly crafted presentation deck with speaker notes to educate your employees on equity basics.

If you plan to give your employees equity, you should also provide equity education. At Carta, we can help. Check out our Twitter, LinkedIn, and Facebook profiles for links to equity tools and resources.