One Idea to Make Europe Bigger in Tech Is to Pay Employees More

Europe isn’t producing the kind of large, globally-influential technology companies like those coming out of the U.S. and China. A perennial question is why?

One reason might be that European startups don’t give employees as much of a chance to strike it rich, according to a new study by the European venture capital firm Index Ventures. While startup employees in the U.S. are often rewarded with stock options — allowing them to cash out handsomely if a company is sold or goes public — young firms in Europe don’t offer the same scale of incentives.

In an analysis of 73 companies, Index found that European employees own on average about 10 percent of the startup where they work, compared to 20 percent for U.S. workers. European companies often skew stock options to executives rather than rank-and-file employees.

The potential for a financial windfall would make it easier for European startups to recruit and retain employees who may otherwise join U.S. tech firms that offer better salaries and benefits, relocate outside of Europe, or go into lower-risk corporate jobs, according to Index. The firm, started 20 years ago with the goal of bringing a Silicon Valley venture capital model to Europe, has backed companies including Skype, Supercell and Just Eat.

European policymakers, investors and business leaders are grappling with ways to boost the region’s technology industry. Better known for its tough regulation of the sector, rather than innovation, the area is trying to create an environment that will make Europe home to the next Facebook Inc. or Tencent Holdings Ltd.

Index believe policymakers across the region need to do more to encourage companies to give stock options, including lowering taxes when the options are exercised.

In Sweden, a lack of lucrative stock options at Klarna AB, one of Europe’s few technology unicorns, caused a raft of senior exits as Swedish tax laws made it difficult for Klarna to reward staff via shares.

“We believe that a fresh approach to employee ownership is key to creating European tech giants on the scale of Google or Amazon,” Index says in its report.
Source: Bloomberg