Add-on: (Financial) Employee Participation

This sub-chapter gives you a brief overview of things to consider when you want to implement employee participation in your ownership and/or financing structure.

General concept of employee participation

Employee involvement in a steward-owned company can take on various forms. This might include appointing employees as stewards, granting them specific voting rights – such as the ability to vote on who should become a steward – or establishing a governance structure that gives employees autonomy over certain decisions. Another form of involvement is financial participation, where employees or early team members share in the company’s financial success or receive compensation. In steward-ownership, these benefits are always time-bound and in some way limited. However, the way employees participate financially can vary greatly – ranging from bonus systems and pension plans to silent partnerships and redeemable non-voting shares. Employee participation can serve not only as a means of incentivisation but also as a tool for refinancing and employee retention.

Employee participation and financing structure

Just like decisions around founder compensation or defining fair and adequate returns for investors, employee participation shouldn’t be considered in isolation. These elements are interconnected and should be thoughtfully balanced with the financial recognition of other stakeholder groups. Even if employee participation isn’t implemented right from the start, founders and entrepreneurs should reflect on how today’s choices – around investor returns or founder upside – might shape future expectations and perceptions, especially among employees.

It’s helpful to address the structure for employee participation — when and how it pays out, and how it interacts with investor and founder redemptions — early on, as they will need to be integrated into the overall financing logic and the liquidity waterfall – potentially also influencing which financial instruments are most appropriate. While decisions around employee participation can be made early on, the legal structuring of these elements can also happen later, for example in a future financing round.

Please note that this text focuses specifically on financial participation for employees – though, as noted in the introduction, there are other meaningful ways to include employees beyond (or in addition) to financial participation.