Should you give marginal equity to contractors that you hire?


2

What do you think about giving a tiny amount of equity to contractors and consultants? Do you think it would make them more motivated to do a better job if they have ownership in the company?

Equity Consultants Contractor

asked Apr 17 '14 at 22:42
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Salvatore Cochrane
11 points

2 Answers


3

It depends on the stage your business is in, but in most cases my answer would be NO.

Too early on it just makes things too complicated for you - your business has questionable value to your contractors and small percentages are not too exciting and might not help you lower their fees or add significant motivation. From an agreement writing point of view, you would need to determine vesting criteria based on work produced and it could vary from one contractor to the next based on what they do for you, so it adds complexity the agreement you need to come up with.

In later (growth) stage, something like a gift card or a small bonus might be a better option - simpler for you and might produce the same desirable effect you are looking for, especially if people don't expect it.

The best motivator is treating people that work for you well - praise them for good work they do and encourage them to feel involved and appreciated. Recognition of their work and feeling appreciated will go a long way to keep their motivation on the level you want.

answered Apr 18 '14 at 15:57
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Webbie
2,835 points

2

Assuming you mean contractors who are being paid their going rate, then absolutely not.

1) Contractors aren't motivated by equity (if they were, they'd have become founders),

2) They're not taking a risk to earn the equity,

3) You don't want invisible shareholders.

If on the other hand, you mean consultants who are working against a risk, i.e. a massively reduced, or even, free, rate - then yes.

1) Equity (which is relative to their input, minus salary, with a multiplier to cover their risk) will be a motivator and quality controller,

2) but you should have fair value buyback rights

otherwise,

3) they're a founder, in which case, treat them like one.

answered Apr 22 '14 at 12:58
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Nick Stevens
4,436 points

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