Successful companies and businesses are fully aware of the importance of attracting and retaining top employees. Not only does this boost the business’s product and service delivery, but it can be the difference between growth and retrogression. Typically, companies entice and motivate talents by providing them incentives like stock. This traditional method has been in existence in the corporate world for decades. However, with the constant evolution of technology, some companies have realized the potential of using cryptocurrency as part of employee incentive programs. In a nutshell, employees could get paid in digital currencies instead of cash or equities like stocks.
Cryptocurrency needs no introduction. The future of finance is gaining massive popularity every day, with many companies even adopting it as a payment option. Companies like PayPal, Microsoft, Balenciaga, and Tesla already accept cryptocurrencies as payment for their merchandise. Looking at this, there's no doubt that companies will offer cryptocurrency as part of their employee compensation plan soon. Of course, some are already doing this, but should this be a mainstay? Let's see why companies should consider this.
Understanding Incentive Stocks and Crypto-Based Rewards
Since their advent, cryptocurrencies have had various use cases. Being offered as part of incentive packages is one of them, and the call to have more companies join the crypto bandwagon is constantly increasing. This shouldn't come as a surprise. Employees find crypto attractive for various reasons, such as the likelihood of an increase in value and the ease of converting crypto to cash upon receipt, assuming there are no limitations on the exchange. For employers, opting for a crypto-based rewards system will offer increased efficiency and ease of management and result in fewer expenses.
From the above, it's clear why companies are navigating to token-based incentives, but does it hold up well against stock options? With stock options, companies create a program to issue shares to employees at a set price. The company usually stipulates a vesting period of more than a year before holders can fully exercise their rights over the shares. During the vesting period, the share price will rise significantly, and holders can cash in their shares during a major windfall. The structure of stock options ensures top talents within the company are retained while they become incentive owners. Although the gains are evident, employees must pay tax on the price difference between the sale and option price. Also, the waiting period may go down poorly with everyone.
On the other hand, token-based incentives will allow holders to access the tokens immediately if no restrictions are placed on them. Since the user will have access to the digital coins, they can decide to HODL or sell to a fellow employee. The token-based incentive is better when you consider that there's no vesting period and tax payments.
Benefits and Downsides of Paying Employee Incentives in Cryptocurrency
Using cryptocurrencies as incentive programs will benefit the employee and the company. For companies, offering a crypto-based incentive program will lead to instant payments. Checks take a few hours to days to process, depending on the employee's location and office. On the other hand, crypto transactions are fast. Furthermore, there are fee rebates with traditional payments. Extra costs or exchange fees are applicable. These additional charges are non-existent with crypto transactions because payment processes don't conventionally take place, so that employers can avoid them.
Adding to the point above, paying employee incentives in crypto eliminates any third party like a financial institution. In addition, Bitcoin and other cryptocurrencies are peer-to-peer or P2P transactions, meaning payments go directly to the receiving party. This results in higher speed and lower government control.
Also, there needs to be a tax rebate in some countries that accept crypto. Countries like Portugal and Germany have lenient crypto laws, where bitcoin transactions attract 0% tax charges. When you consider the gains of these assets over time, you will realize how much you will save on taxes.
Furthermore, cryptocurrency-based incentives appeal to the larger workforce. According to an Investopedia study, roughly 38% of Millennials, 28% of Gen X, and 23% of Gen Zers have a crypto investment. Therefore, paying employees in crypto will be a fantastic way to retain them. In addition, considering more Gen Zers are entering the workforce, crypto-based incentives can be a good draw.
Finally, offering crypto incentives will not affect the company's capitalization, unlike stocks or other incentive options. So, when you compare stocks to crypto from a valuation perspective, crypto might provide a better incentive to stay than stock.
Despite the numerous benefits, varying tax laws and poor integration may hinder the adoption of a crypto-based incentive. Some countries are tax havens, while others impose heavy taxes on crypto transactions. For example, India imposes a 30% tax on income earnings. In addition, users must report their crypto transactions to the IRS in the United States. Therefore, companies must be aware of the various tax laws to stay above scrutiny.
And then, we have poor mainstream integration. Banks and several businesses still will not accept crypto. This can create difficulties for users who want to make purchases or execute financial transactions.
Designing an Incentive Program in Cryptocurrency
Creating an incentive program in crypto is quite tricky, given that it is unconventional. Before you proceed as an employer, you have to consider some factors. First, ask yourself if a crypto-based incentive program will fit into the business structure. Next is to determine the payment terms. Will you pay the incentive in local currency and facilitate the conversion into crypto, or will you make the incentive payment directly into crypto?
When paying in local currency, you are only expected to make a few changes except adding a protocol to convert the local fiat to cryptocurrency. On the other hand, paying natively in crypto is a new process. This is a hurdle you wouldn't want to face alone to avoid making mistakes that could cost you in the future. So, seek the help of a blockchain-based platform like Libra Incentix to help you set up a crypto-based incentive program.
Cryptocurrency has yet to be widely accepted, but it can significantly impact compensation and incentive programs. Companies can take advantage of the popularity of crypto among their employees to offer incentive programs in crypto. This will be a better option for acquiring top talents, retaining employees, and motivating them than stocks. However, companies must discuss this with their employees before making any decision.
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