How to Negotiate With an Employee Who Wants Equity
By VICKY BROWN
So you’re running a small business – maybe it’s finally gaining traction, you’ve got a few key players, and then one of them asks:
“Can I get some equity?”
And just like that, the conversation shifts from “great team vibes” to “founder panic mode.” Because let’s be real – equity in a privately owned business isn’t just a line item. It’s ownership. It’s voting rights. It’s decision-making power. And once you give it away, it’s not coming back easily.
But before you panic or shut it down completely, let’s take a step back and unpack what’s really going on – and how to lead this conversation like the CEO you are.
Start by Asking What’s Really Driving the Request
Most people don’t actually want equity in the way we, as owners, think about it. What they want is to feel valued, rewarded, and part of something bigger.
When someone brings up equity, a great place to start is by asking:
“What’s most important to you in your compensation?”
That one question opens the door to a real conversation. You’ll find out whether they’re looking for wealth-building potential, long-term commitment from you, influence in the company, or just a clearer path to advancement.
Not only does that shift the energy, but it also keeps you in control of the narrative – and avoids you giving away something massive just to keep someone happy.
Understand What Equity Means in Your Business
Here’s where a lot of people get tripped up. They think equity means the same thing in every business – but it doesn’t.
In a venture-backed tech startup, equity might come with the promise of a big exit someday. But in your privately held, service-based, cash-flow-run business? There may never be a “liquidity event.” There may never be a payout. And even if there is, it could be years away – and complicated.
More importantly, equity comes with real rights:
- A say in business decisions
- A claim to profit
- Legal access to company documents
- Potential control, depending on how your agreements are structured
That’s why I always say – if you’re a founder who likes to drive the car, don’t hand over the steering wheel just because someone asked nicely.
Define Your Boundaries Before the Conversation Starts
This is a leadership moment. And one of the most powerful things you can do is get clear on your own boundaries before you ever sit down to negotiate.
Are you open to any form of shared ownership? Are you dead set against it? Would you consider something down the line but not right now?
You don’t owe anyone a piece of your company just because they’re talented. But you do owe it to yourself to make thoughtful, strategic decisions that align with the business you’re building.
“… And just like that, the conversation shifts from “great team vibes” to “founder panic mode.” Because let’s be real – equity in a privately owned business isn’t just a line item“
Alternatives That Can Keep Everyone Happy (Without Giving Up Control)
Here’s where things get interesting – and honestly, kind of exciting. Because there are ways to reward people meaningfully without handing over equity.
Some options include:
- Phantom equity: The employee gets a payout if the company grows or hits certain milestones, but they don’t actually own anything.
- Profit sharing: When the business wins, your team wins too – in real dollars.
- Long-term incentive plans: Structured bonuses or retention incentives that kick in over time.
All of these give your team a reason to stay and perform – without you having to restructure your entire ownership model.
Whether you’re an entrepreneur jumping into a leadership role, a seasoned business pro with new HR responsibilities, or just starting your HR career – we’ve got the right path to guide you through your HR hurdles.
Check out the Leaders Journey Experience. This online education platform holds the LJE Masterclass, HR SimpleStart Academy and HR FuturePro Academy.
Not sure where to start – take the quiz!
If You Say Yes to Equity, Call In the Experts
Let’s say you’ve had the conversation, and after thinking it through, you’re actually open to giving equity. That’s fine – but this is not the time to DIY it.
You’ll need a lawyer to review your operating agreement, make sure you’re clear on buybacks, vesting schedules, and ownership rights. You’ll also need a tax advisor to explain the potential consequences – for both you and the employee.
And please, for the love of all things legal – get it in writing. No verbal promises. No vague commitments. Put everything in a formal agreement with timelines, conditions, and clear language about what happens if someone leaves or if the business gets sold.
Your Leadership Shows in How You Handle the Ask – Not Just the Answer
The truth is, saying “no” to equity doesn’t make you a bad leader. What matters is how you say it – and whether you offer something meaningful in its place.
When you handle these conversations with transparency, strategy, and empathy, you reinforce your role as a thoughtful, long-term leader. You show your team that you’re building something real – and that you’re protecting it for everyone’s benefit.
You don’t have to give away part of your business to build loyalty. But you do have to lead with clarity. That’s what sets you apart.