Many Americans are regularly reading our blog site and might be puzzled a bit by the heading. Unlike their European counterparts, US companies have had employee stock option plans in place for a very long time. In fact, in the startup scene it is the underlying foundation and no startup would be able to hire any employees without it. Why do they do this?

• Ownership motivates. Employees who own part of a company will put much more effort into their work. For startups this also means that developing value in the shortest amount of time to be able to monetize the stock options with a trade sale or IPO is something that every single employee is motivated to contribute to.
• Ownership provides confidence: In particular for startups, success and failure are close together. Having the possibility to make, on success, a good amount of money serves to counterbalance the inherent risks. The same would apply for larger and more established companies.
• Attracts and binds qualified people. If a startup does not provide stock options to its employees (something we see very frequently in Europe) they can still hire people who don't understand the basics of ownership and - Americans will be totally surprised to hear this - is something not so uncommon. Of course highly experienced people who understand the basics of ownership participation at least won't be attracted and for sure won't be motivated.

Now why is it that European companies and even startups are so backwards?

• To get a job at all. This is often the driving reason. Better having any job than no job at all.
• Lack of know-how. Lots of employees simply don't know of the possibilities of stock options and management does not bring it up either as they keep it entirely to themselves. Also management has not much clue on the motivational factor that this could bring and probably are even right as if someone does not know things then it is hard to motivate him/her with it. But they could be educated at least.
• Tax implications: often the tax situation is even more awkward than the company's stock option policies. Discussion has now started in Germany e.g. on tax free ownerships. If I read the story correctly then they want to give EUR 360 per year for free. I had a good laugh when I read that an army of politicians are now discussing this earthshaking policy change.
• Stinginess. This low personal character attribute is often the real reason why management and owners stick to their ownership and don't want to share it. They don't understand the basics of how to motivate their employees and are missing a big opportunity. At the end the startup team is working the same hours and with the same effectiveness as a guy at Siemens or ABB. This is not what I would consider a fast-paced value-developing environment. Why do you have startups and VCs then in the first place you might ask yourself? Good question, I think, and I have no answer for that. Hope they do?!