Attorneys. Counselors. Business Partners.

  1. Home
  2.  » 
  3. Corporate Law
  4.  » How to start an equity compensation plan for your business

How to start an equity compensation plan for your business

On Behalf of | Oct 19, 2023 | Corporate Law

Modern employees want their employers to offer equity compensation plans in addition to a host of other benefits. These plans give workers a stake in the companies they serve, aligning their interests with those of executives.

Implementing an effective equity compensation program is easiest when you remember the steps of creation.

Define your objectives

Begin by clarifying what you want your equity plan to achieve. Are you aiming to reward long-term loyalty, incentivize performance or encourage key employees to stay with the company? Whatever you desire, a generous equity compensation plan can do the trick. Nearly one-third of human resources professionals report that this is the number one factor in attracting and retaining talent.

Determine eligibility

Decide who will qualify to take part. You can offer this option to key employees and managers only or absolutely everyone. Either way, establish clear criteria for who may enroll.

Choose equity type

Different forms of equity compensation include stock options, restricted stock units (RSUs) and employee stock purchase plans (ESPPs). Select the one that best aligns with your corporate objectives and the needs of your staff.

Set vesting periods

Vesting refers to the length of time employees must work for a company before they may access their equity. Carefully determine the timeframe and communicate this aspect of your equity compensation plan with participants.

Regularly review and fine-tune

Over time, analyze the effectiveness of your plan. Take stock of its impact and make tweaks to ensure it remains aligned with your wishes.

Creating an equity compensation plan does not have to be a difficult or mysterious chore. What matters most is that you execute a wise approach. Before beginning, understand what it takes to make yours irresistible.