By Harness WealthFinances — October 27, 2020

Managing Employees Through a Liquidity Event: How HR Can Help with Equity Decisions

This can be an exciting time for your organization, but if you’re a manager or HR leader, it likely means you will be facing a wave of questions from employees throughout the event about what it means for their equity and personal finances.

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Your company is going through a major liquidity event: an IPO, merger, or acquisition. Congratulations! Less than 1% of employees hold equity in a traditional company, but at tech companies, typically 60-90% of employees hold some form of options or shares. This means that there’s a particularly unique upside to joining a tech company, but several complications related to tax and financial planning when liquidity occurs. 

Information from the company: Vesting, stock purchase plans, and lockup periods

Depending on the nature of your liquidity event, whether your employees are likely to be experienced with equity, and many other company-specific factors, you’ll be fielding different types of questions. Below are the most common and most generally applicable:

This baseline information should be presented to employees in an understandable way as soon as possible. Equity is a key part of the incentive structure for many tech employees, and the company is responsible for educating their employees on the various numbers and dates that may have a significant impact on their personal decisions. 

Personal financial and tax planning considerations for employees

Below are the myriad considerations that employees are managing on their own. The answers to these questions vary highly based on how long they’ve worked at the company, how many options/shares they hold, their household financial situations, and their financial goals. 

As you can imagine, this wave of uncertainty and sudden crash course in tax law can be stressful for employees and they often turn to the company (managers, coworkers, etc.) for help. Luckily, what’s helpful to the employees is also helpful to the company’s bottom line. Providing external resources to your employees will lower the risk of misinformation spreading and reliance on managers and HR/people teams for tax and investment expertise. 

It’s also a great time to authentically demonstrate your company’s commitment to employee engagement and happiness in a volatile time where employees may be considering planning their exits, as a liquidity event isn’t always welcome news for everyone, particularly when it’s a merger or acquisition. 

Employee benefit: Personal tax and financial advising through Harness for Employers

It’s unreasonable to expect that a quick mass email can take care of all of the many different types of questions each employee has, so the best solution would be to offer a resource where each employee can receive advice specific to their own financial situations. 

Harness for Employers is an employee benefit program that provides custom resources to each employee, across seniority levels and financial backgrounds. We’ve helped multiple companies through liquidity events to empower their employees and offload the burden and risk from company leadership and HR onto expert financial and tax advisory firms. 

Expertise in very specific tax regulations and financial planning strategies is available through advisory firms across the United States, but it’s difficult for most people to devote the time and energy necessary to evaluate each one and find the ones that are true experts with client-aligned incentives, priced within their budgets, and have experience relevant to their needs.

We’ve done the evaluation work upfront and evaluated firms on over 120 attributes to handpick the best for your employees. We connect them to the ones with startup equity experience so they can receive personalized help from qualified sources, holistically — across financial, tax, and estate planning services.