Ever thought about owning your employers? Ownership is an effective way for creating wealth over time. The thought of ownership can feel fulfilling, for example owning your own home, or business. Ever thought of owning a piece of the company you work for? When you purchase a stock or share in a company, you technically own a piece of that company and you are a shareholder.
There is what they call the “war for talent” whereby companies are competing for the best candidates. In the Fintech or Technology sector for example, companies need to somehow incentivise their staff that their loyalty within these companies will be rewarded. What could be more alluring than the promise that employees are not more than just “a number” within a company, but potential co-owners in line for a big pay out, as long as they stay for some time?
Some companies are traded on the stock market and a lot of companies offer a share options benefit. A share option, simply put is you work for a company and they give you a piece of the business. It’s another form of compensation. Each company has their own intricacies, but for the sake of simplicity at the beginning of each year, your employers will provide you with a number of share options on a yearly basis, every year until you either leave the company or retire. This is a fantastic way to increase your wealth over time.
Benefits of owning your company stocks
If for whatever reason I am unable to get share options as benefits, I sometimes like to acquire the company shares via the stock market. This is provided they are publicly traded and subject to whether I think the stock price is not too high. You may wonder why someone would do such a thing. I’ll list a few reasons why it’s good to own a piece of your employers:
- If the company grows, you grow with it:
This for me is a key element, there is an expectation that as time passes by, companies tend to grow. If that is to be the case it would good for employees to also share the success of the company in the form of their capital appreciation from their shares.
- Motivation
As a result of the above point, my motivation levels will more than likely increase knowing that I can indirectly impact the value of the company I work for and ultimately myself. I think it’s psychological rewarding, and helps one condition their thinking for the medium to long term.
- Increases your net worth
In addition to the first point, imagine becoming a millionaire as a result of your share options! Yep this is possible, obviously subject to the company increasing its value over time. Assuming one stays at a particular company for a considerable amount of time and manages to get a few promotions within that time. It’s very possible to accumulate a nice capital appreciation on ones holdings over time.
- Shareholder/Employee perspective
Before I started buying shares, I use to only see things within a company from the employee perspective. I never saw it from a shareholder perspective at all. Being a shareholder has helped me see things from both perspectives and has helped me look at my role within a company in a different light, I’m constantly thinking how I can add value to my role, department and ultimately the company. I think it has also increased my commercial awareness and business acumen.
Drawbacks of owning your company stocks
It would be wrong to not talk about the drawbacks of share options, here are a few:
- The company can fail
No company is too big to fail, so one should always be mindful when deciding whether to invest in a company of their choice. Certainly the more established companies are probably more likely to withstand the test of times in comparison to a start-up company. This is probably the reason why the returns on the established companies tend to me lower than the potential returns on a start-up company.
- Termination of the shares before a certain (vesting) period
Companies use stock options to incentivise employees to stay at the company a sometime. However you can lose your share options if you resign or are sacked by your employers before you become vested (or within a certain time).
- Putting all eggs in one basket
It can be very risky to count on your share options to essentially fund your lifestyle or future. Share prices are subject to price increases as well as price decreases. Investments can go down and not according to plan. It’s advisable to diversify! It would be good idea to arrange your personal finances, enabling you to diversify your portfolio and assess the level of risk you can take on in the share options.
My story
I use to do freelance work at a huge media company which is owned by huge conglomerate, I was and still am a consumer of their content via their streaming services etc. For me it was a no brainer to buy shares in that particular company via the stock market. They have been in existence for a very long time, indicating they have fared well against the tests of time, and they pay dividends. Dividends are a distribution of profits by a company to its shareholders.
Fun Fact: I recently went back there for a job interview, they asked me what I knew about the company. My response was that I’m a shareholder of the company, their response was, “you’re our boss, we work for you!” *banter*
This is how my current holding in the company is performing at the moment. Not too great right now, I hope to hold them for the foreseeable future and I still receive quarterly income from them in the form of dividends. This is to also demonstrate that investing can drop in value which I am comfortable with.
Food for thought
If for whatever reason your employers are not publicly traded on the stock market nor do they offer any share options or schemes as such. It may be worth considering buying shares in public trading companies similar to your existing employers, in terms of the services or products they offer. Obviously check the terms and conditions of your employment contract to confirm that there is nothing prohibiting you from doing so.
The reason behind this is that, it’s good to invest in things you know and understand. You’re probably more likely to have industry knowledge and understanding based off your time at a company, hence it wouldn’t be a bad place to start investing there or within its sector.
Final thoughts
Despite the downsides to stock options, I personally like the idea of stock options. If one takes the necessary personal risk assessments, i.e. their disposal income, the number of financial commitments, how much they can afford to lose if things don’t go well, I think they can make a decent return.
If for what ever reason the share options proves difficult or you are not ready to subscribe to the commitments of your employer’s share option terms (if they have one), perhaps consider buying the shares on the stock exchange.
I suppose to an extent it’s still provides an incentive to stay motivated knowing that if the company grows you do too!
As mentioned above, please be aware of any terms and conditions that may prohibit you from buying shares of the listed company you work for on the stock market.
Disclaimer: TheHustlingDad does not give out any financial advice. Please conduct your own research and know that investments are subject to decrease as well as increase.
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