Klarna Made Its Early Employees Millionaires: How Do Employee Shares Work?

Klarna, a Swedish fintech company, finally went public this week, but the headlines were less about the company’s impressive valuation and more about the wave of new millionaires it created.

Early employees who had been granted shares in the Swedish fintech suddenly found themselves sitting on fortunes thanks to the company’s IPO. According to Fortune, Klarna’s stock surged on debut, echoing stories from Silicon Valley where firms like Nvidia, Canva and Palantir have minted employees into the wealthy elite.

But, while the numbers make for eye-catching news, the real question is, how do employee shares actually work, and why have they become such a crucial tool for startups?

 

Why Do Companies Offer Employees Shares?

 

For startups without deep cash reserves, espeically those in the very early stages, offering competitive salaries can be difficult. Equity steps in as a way of bridging that gap. By giving employees shares, a business can reward loyalty, incentivise performance and attract top talent who might otherwise choose a bigger, more established firm.

As Klarna’s example shows, those shares can be more than symbolic – they can transform the financial future of employees if the company succeeds. Of course, this is only true if the startup ends up being successful. If it crashes and burns early on, employees who accepted shares alongside low salaries may lose out. But that’s all part of betting on a startup.

According to analysts, equity has become one of the most powerful recruitment tools in the tech world. In fast-growth companies, employees aren’t just joining a workplace; they’re buying into a mission. The chance that their shares might one day multiply in value creates alignment between personal success and company success.

 

 

How Employee Share Schemes Work

 

The mechanics of employee shares can vary, but most follow a similar framework. When you join a company, you may be granted a certain number of shares or options. Options are not shares themselves but the right to purchase them later at a fixed price, often called the “strike price.”

Typically, these shares or options are subject to a vesting schedule. That means employees don’t own them outright from day one – they earn them over time, usually over a period of four years with a one-year “cliff.” If you leave before your first anniversary, you get nothing. Stay longer, and your shares gradually vest, rewarding long-term commitment.

According to venture capital experts, this model not only encourages retention but also protects companies from handing out equity to those who don’t stick around long enough to contribute meaningfully.

 

The Risks and the Rewards of Accepting Employee Shares

 

While the Klarna story is glamorous, it’s important to remember that equity is, by no means, a guaranteed windfall. For every startup that goes public and surges in value, there are many more that fold, leaving those paper shares worthless. Even in successful companies, liquidity can be an issue – employees might own valuable stock on paper but be unable to sell until certain milestones are reached, such as an IPO or acquisition.

That said, when it works, it really works. According to reports on Klarna’s IPO, some long-term employees saw life-changing sums almost overnight. Similar stories have emerged from firms like Canva in Australia and Palantir in the United States, proving that equity is not just an American phenomenon but a global one.

 

Why Employee Shares Benefit Startups

 

Beyond employee wealth, equity is a strategic lever for companies themselves. It fosters a sense of ownership (literally) among staff, encouraging them to think like founders rather than just employees. In the words of many startup CEOs, equity transforms a job into a partnership. Employees are far more likely to actually want to contribute meaningfully to the journey of the company because its success is directly linked to their own.

For early-stage businesses especially, where every hire is critical, this can be invaluable. People aren’t simply clocking in for a pay cheque – rather, they’re working to increase the value of something they partially own. This mindset often drives innovation, efficiency and resilience in the face of challenges.

 

Lessons To Be Learned from Klarna’s Story

 

Klarna’s IPO illustrates the upside of equity in the starkest possible way. Employees who joined in the company’s early days, perhaps taking a risk on a small Swedish fintech, are now millionaires. That outcome wasn’t guaranteed, and plenty of startups offering shares never achieve such success. But, the principle remains – when employees and companies grow together, the rewards can be extraordinary.

For anyone considering a role at a startup, it’s worth asking not just about salary but also about equity. How much is on offer? What’s the vesting schedule? What rights come with those shares? The details matter, and understanding them could be the difference between walking away with nothing or with a life-changing sum.

Klarna’s rise is a timely reminder of the power of employee shares. They can be risky, unpredictable and slow to pay off, but when they do, boy oh boy do they pay off.

As more startups around the world adopt equity as a cornerstone of compensation, employees have an opportunity to share directly in the value they help create. According to those who’ve lived through it, the gamble is often worth taking.