Financial Employee Participation in Startups and Scale-ups: Conditions for Successful Implementation

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This article was originally published on HRmagazine.

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There are several ways to set up financial employee participation. The key is that this form of rewarding must fit the company. In this article, reward expert Geert Jan Eissens discusses strategic questions that help guide an effective reward policy for growing businesses such as startups and scale-ups.

Let’s start from the broader, existing reward policies that many organisations already have in place. Even startups and scale-ups usually begin with basic salaries linked to roles, commuting allowances, training budgets, and in some cases, pension schemes.

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Employee participation as a reward tool for growing companies

In many cases, there is little deliberate thought behind a reward policy, and companies look at what neighbouring firms or peer startups are doing. The focus is often elsewhere, employees are generally enthusiastic, and smaller companies rarely have a real strategic HR policy.

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Reward as a motivator

But how much of a problem is that? Reward is often seen as a strategic tool to guide employees in the right direction. A company has a mission and a strategy for achieving it. Employees carry out that strategy. Larger companies usually have a comprehensive HR strategy with multiple tools to help achieve goals. Reward is one of these tools: it can motivate, increase engagement, and ultimately improve performance.

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Reward as a distribution method

‍Growing companies usually have fewer resources, but far more flexibility to define their own course. At its core, reward is not only about motivation, job satisfaction, happiness, or attracting and retaining talent. Reward is first and foremost a distribution mechanism (a basic condition). The challenge lies in tapping into intrinsic motivation to retain employees, contribute to their job satisfaction, and encourage them to perform.

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Three key drivers of job satisfaction

‍As Daniel Pink described in his book Drive (2011), the three main drivers of satisfaction are: Autonomy, Mastery, and Purpose. In other words, give employees freedom to do their work, focus on their development, and encourage growth. Purpose—why the company exists—is increasingly important, especially for younger employees. Meaning, social contribution, and sustainable goals are often leading factors in choosing an employer.

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More space for HR strategy in startups and scale-ups

‍Startups and scale-ups often have much more freedom to define their own HR strategies and to create a “Great Place to Work.” These companies frequently pursue a mission and a broader societal goal. While financial results like EBITDA and ROI remain important, they are not the only driver.

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Why consider employee participation?

‍There are several clear reasons for introducing employee participation as a reward tool, as the Dutch Social and Economic Council (SER) has long encouraged. For growing companies, the main motives are:

• Retaining talent
• Increasing commitment and loyalty
• Creating a level playing field where employees share in company growth

For this tool to work, companies need to invest in it and implement it well. When introduced properly, participation plans often lead to positive results. Financial employee participation is not a trick or a guarantee. The conviction that matters is that success comes from combining employee talent with insight into how the business runs. This explains why countries like France, Germany, Scandinavia, and the UK embraced these plans years ago, partly because their tax systems are more employee-friendly.

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Investors

‍Encouragingly, more startups and scale-ups are embracing participation*. This makes sense, since investors (private equity and venture capital) are key stakeholders and create leverage to accelerate growth. Platforms like Eyevestor also stimulate share-based funding and participation.

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Conditions for success and sustainability

‍Any participation plan must balance four elements:

1. Strategy & Policy – What kind of company do you want to be? How does participation support your strategy? For example, preserving independence, fostering a family culture, maintaining startup spirit, or pursuing growth.
2. Technical Design – How should participation be structured? What rules make it clear and transparent? How will the plan evolve over time with employee turnover or share trading? Proper documentation and sustainable administration are essential, often with support from external partners like Sharesquare.
3. Financials – What is the company worth? Unlike listed firms, private companies need valuations to set share values. Accountants, valuators, and even the tax authorities play a role. Equally important is how employees perceive value: as a benefit, a gamble, or an investment. Exit conditions must also be clearly defined.
4. Communication & HR – How will employees experience participation in practice? Communication must be clear, transparent, and supported by leadership. Employees need to understand what participation means for their personal financial future as well as for the company.

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*Common forms of participation include shares (often via a STAK), share options, virtual shares (SARs), and profit-sharing (cash bonuses).

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Considerations

‍In summary, participation plans can be highly effective for growing companies. They are not a guarantee for success, but when they fit the company’s HR strategy, they can add real value. Employers should be aware of potential pitfalls, such as:

• Target group: Do you include all employees or just management? What signal does that send?
• Expectations: Will employees expect voting rights or decision-making power? With SARs or certificates, that is excluded.
• Conditions: Participation rights and exit scenarios (good/bad leavers) must be clearly documented.
• Valuation: Be transparent about how company and share values are determined, especially in cases of sale, illness, or death.
• Risks: Linking value to growth carries risks if growth stalls. Is EBITDA the right benchmark?
• Implementation: Success requires a professional plan, clear decision-making by shareholders and management, transparent communication, proper agreements, and accurate valuations.

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