A Treatise on Tender Offers: Might This TR Tool Work for You?

Tender offers appear to be all the rage these days in Silicon Valley — but high-tech startups aren’t the only companies that can pull this total rewards lever, suggest the experts interviewed for this Workspan Daily article.  

In publicly traded companies, key employees may receive stock options — the right to purchase shares at a set price when certain conditions are met, explained Ryan Cameron, a senior director at consulting firm WTW. Then when these employees need cash, they can sell their shares at any time on the open stock market.  

Employees at private companies also can earn equity as part of their compensation — but they can’t cash out through the public market any time they have a need. 

To address a variety of employee and employer needs, enter tender offers.

Tender Offer, Solid Opportunity

Tender offers are employer-sponsored liquidity events that allow employees or shareholders of private companies to sell their equity back to the company or to outside investors at a predetermined price, said Shawn Murphy, the head of private markets for financial firm Morgan Stanley at Work.  

“They convert paper wealth into real money, enabling employees to realize the value of their equity without waiting for an IPO [initial public offering] or acquisition,” he said. 

Helping employees convert equity into needed cash can drive retention and recruitment, said Sue Holloway, a content director at WorldatWork. 

“Tender offers can be a powerful tool in a company’s total rewards strategy, especially when it comes to retaining employees who may be a flight risk because they’ve received multiple equity grants over time and built up significant equity value they can’t yet access. In those instances, those workers may be tempted to leave to access that value,” she said. “Tender offers also address real-life financial needs, like buying a home or funding education, which can be incredibly meaningful to employees.”  

By providing liquidity, employers can enhance the perceived value of equity awards, making them more competitive with publicly traded companies that enable employees to sell stock more easily, Holloway added. 

“When companies execute a tender offer, they may not want to be quiet about it,” she said. “It helps prospective employees know there is opportunity there.” 

Might Tender Offers Work for You? 

High-growth tech startups are an obvious fit to utilize tender offers. But what other types of organizations might benefit from this approach?

“With greater access to venture capital funding, ongoing market volatility and the regulatory demands of going public, many companies are choosing to stay private longer,” Morgan Stanley’s Murphy said. “While this trend allows private companies to retain control over their growth strategy, it may also limit their ability to leverage the power of equity ownership to attract and retain talent.” 

Incorporating equity into total compensation plans also can be very practical for startups, which tend to be cash poor and tend to attract growth-oriented talent that is newer to the workforce, Holloway said. A tender offer can support these employees at key life moments, allowing them to exchange that equity for cash — for instance, to fund a home purchase or start a family — even if the startup isn’t ready to go public. 

Organizations typically determine which employees can participate in a tender offer based on a percentage of vested equity. That normally benefits longer-tenured employees, senior leaders and high-performing contributors whose equity has vested and who may be seeking financial flexibility, Murphy said. 

But Holloway said startups aren’t the only entities that can strategically utilize a tender offer. WorldatWork’s Incentive Pay Practices report revealed more than half of private companies utilize long-term incentive (LTI) plans to reward employees, and these incentives often include some sort of real equity that vests over a three- to five-year period. 

How to Execute This Strategy

What might employers need to consider if they are looking to move forward with this total rewards approach?

“Tender offers are highly regulated transactions, especially in the U.S., and must comply with SEC [Securities and Exchange Commission] rules,” said WTW’s Cameron. “They also create tax consequences for both the company and participating employees.” 

Don’t underestimate the time and resources required to do this right, agreed Murphy. Beyond structuring the offer and setting eligibility parameters, companies likely need to develop effective employee and investor communications. Some common first steps when preparing for a tender offer include:  

• Engage external partners with liquidity event experience.
• Ensure the capitalization table and equity allocations are up to date. 
• Define strategic goals for the event.

These experts also recommended that employers:

• Involve legal and tax advisers early in the process.
• Be prepared to help educate employees to understand tender offers.
• Promote a healthy equity ownership culture.
• Engage company leadership, the board and HR to help ensure an offer aligns with wider corporate goals, talent priorities and organizational culture. 

The resulting tender offer team will make key decisions, such as: 

• Setting the share price and offer duration;
• Determining who will be allowed to participate in the event;  
• Defining how many shares can be sold; 
• Obtaining necessary approvals; and, 
• Ensuring regulatory compliance 

Position tender offers as a strategic tool, not necessarily a one-time event, Cameron said — and evaluate feasibility early, even if the company decides not to move forward immediately. Having a framework in place can help leadership act quickly when the timing and market conditions are right. 

“A thoughtfully designed tender offer can demonstrate that the company’s shares have real, tangible value. Even if a tender offer isn’t executed right away, keeping it in the total rewards playbook helps private companies stay competitive and employee focused as they evolve,” he said. “This approach can re-energize engagement and motivation, reminding employees that their ownership stake can deliver meaningful financial rewards.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Employee Compensation
• Employee Recognition
• Total Rewards