Poor employee retention is an expensive problem for a business to have. For every employee that you lose, you’re spending approximately one-fifth of their annual salary on lost productivity and other costs when replacing them. If you’re losing multiple employees every year, you could also be losing tens of thousands of dollars. To avoid this issue, many employers explore solutions to help retain their key employees. While there are several possible options, tender offers appear high on the list.
What is a Tender Offer?
A tender offer is when a company makes a direct offer to shareholders to buy their shares at a set price for a limited time. Shareholders can choose whether to ‘tender’ their shares, which means selling them.
When comparing tender offers vs market-based liquidity, you’ll find that tender offers are more suitable for the goal of employee retention, as market-based liquidity involves selling shares on an open market, which means anyone at any time can buy them. Tender offers are short-term, one-off events.
Turning Paper Wealth into Real Money
Employees regularly sit on equity that looks valuable on paper but isn’t usable for years. They can sometimes feel as though their only choice to see their money is to quit or wait for an IPO. A tender offer provides them with the liquidity they’re looking for. As a result, they may be less tempted to leave their job, just to cash out.
Reducing Financial Pressure and Risk
It can be risky for someone’s net worth to be heavily tied up in company stock. However, giving them the opportunity to sell a portion lowers that risk. Employees may be more comfortable staying with a company longer rather than diversifying by leaving.
Delivering Trust and Goodwill
It’s not uncommon for employees to feel as though their companies prioritize their investors over them. It can be disheartening to see such tactics played out, like mass layoffs to boost stock prices and outsourcing work. As a result, many consider seeking employment elsewhere.
While providing a tender offer doesn’t always prevent a motivated employee from leaving, it can deliver much-needed trust and goodwill. The liquidity can make an employee feel as though their company is thinking about them, not just their investors, especially when the offer price is perceived as fair.
Resets Motivation
It’s easy for an employee to feel mentally checked out after a big run-up in valuation. After all, they can feel as though they’ve already ‘won,’ with such a high paper value.
However, letting them cash out a portion can psychologically reset them. They may be more engaged for the next phase of growth potential.
Retention Through Structure
It’s not just the feel-good factor of a cash payout that could make an employee want to stay with a company. The way a tender offer is structured may also contribute to higher retention levels.
Most companies design tender offers with limits. For example, only a percentage of shares can be sold, or participation requires an employee to stay employed through to a specific date. Such limitations or requirements subtly encourage employees to remain with their company.
Other Benefits of Tender Offers
There are advantages for both employers and employees through tender offers:
- Employees can use cash from a tender offer to achieve major life goals, like paying off debt, buying a home, purchasing a rental property, or building an emergency fund.
- Price transparency based on recent valuations, giving employees a concrete sense of what their equity is worth.
- Employees can partially participate by selling a portion of their shares and retaining the rest to benefit from potential future growth.
- Equity feels more real when employees can see tangible rewards, which may increase employee satisfaction.
If you’ve been thinking about providing a tender offer for your employees, there’s no time like the present. It may be the very solution you’re looking for to improve your retention levels and take care of your valued employees.
