• Natalia Anguelova, Expert |
  • Crispin Lowe, Expert |

Whether scanning the news or scrolling social media, there is always a cryptocurrency story. Soon, if not already, employees will be asking employers for cryptocurrency as part of their reward packages. 

As government authorities increase their efforts to grapple with digital assets and cryptocurrencies, there will inevitably be an effect on the landscape of the job market. By all indications, adopting cryptocurrency as part of their reward to employees will be an enticing employer value proposition for companies competing for talent as an “employer of choice”.

Why are we talking about cryptocurrency and incentive plans?

The simple answer is employees are asking about it. Whether you are in the crypto space or not, incentive plans are important for rewarding, retaining, and attracting new employees. So even without considering cryptocurrency, as best practice, employers should periodically review their incentive compensation arrangements to make sure they know their position in the market and achieve the results they aim for. Now with cryptocurrency in the mix, employers should take this as an opportunity to consider how cryptocurrency could play a role, if any, in their incentive programs.

Token-based awards can offer many advantages to both employers and employees: efficiency, transparency and (potentially) ease of management, contributing to time and cost savings. Based on a survey we conducted during one of our recent Webcast series, it’s clear that a large number of global companies are already thinking about implementing cryptocurrency as part of their total rewards program in the near future.

Designing an incentive plan that factors in crypto – what would it look like?

The first step with any incentive plan is to determine whether the plan can fit within the employer’s overall rewards program. Typically, a total reward program consists of annual salary, an annual cash incentive (bonus) and a long-term incentive such as equity compensation in the form of stock options, restricted stock units and/ or additional cash awards. A cryptocurrency element should be subject to the same considerations as all these established elements – some key questions to consider are:

  • What behavior is an employer trying to incentivize and how does cryptocurrency help the employer drive that behavior? 
  • Would an employer establish an entirely new plan, replace an existing plan, or amend an existing plan? 
  • Which employees are eligible to participate? What is the culture of the business? What is the current demographic of the workforce? 
  • What vesting conditions would apply (e.g., continued service, performance conditions)?
  • When is the intended go-live, and how much lead-time is needed for education and internal awareness? 

How do payment terms impact plan design?

This depends on what an employer is promising to deliver to employees participating in the plan. Is the incentive plan designed to pay the incentive in local currency, with the employer facilitating the conversion of the local currency into cryptocurrency at the employee’s direction, or will the payment of the incentive be made natively in cryptocurrency? 

  1. When paying in local currency (fully or partially), there are no changes expected to the existing process other than to establish a mechanism to convert the local currency into cryptocurrency. Due to regulatory aspects and the differing legal status of cryptocurrencies across the globe (as well as uncertainty on status in many jurisdictions), plan design needs to allow for employee discretion in conversion options.

  2. Paying in cryptocurrency natively is an entirely new process requiring a decision by an employer on the cryptocurrency of settlement. Given inherent volatility in many cryptocurrencies, stablecoins (such as USDT, USDC or UST, which fix their value to an existing fiat currency), may well be the natural choice for settlement. However, there are other issues to consider even in this choice – the inherent counterparty risk in current major stablecoin offerings, employment and securities law, local tax implications, etc., as well as practical challenges in the mechanics of settlement (will an employer operate its own wallets and who would initiate the transfers; will a third party vendor be engaged to handle the process; and many other points that would need to be clearly thought through and agreed with all stakeholders. 

What is the key to getting this all right?

Firstly, assessing current employee demand level and organization-wide appetite for a crypto-reward program is key. Secondly, education in preparation for a roll-out of reward teams, leadership, HR teams and across other internal stakeholders including the employee-base is needed. Thirdly, considered plan design, balancing intended outcomes with the costs and ease of implementing and running the plan should be defined.

There are clearly many hurdles for employers to overcome, but even at this relatively early stage, it is possible to implement a crypto-reward plan, now. For employers who do not yet choose to go down this route, planning can start now as part of a future total reward offering, ready to respond to what is only expected to be a growing employee demand. 

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